Liquidity mop up, lower TB rate to persist as N173bn hit interbank
CENTRAL Bank of Nigeria, CBN, is expected to continue its liquidity mop operations this week as well as further reduce stop rates on treasury bills, TBs.
Last week, the CBN, mopped up N630 billion from the banking system by conducting secondary market, Open market Operations, OMO, treasury bills auctions on Monday, Tuesday and Thursday. The auctions were in response to inflow of N664.21 billion from matured TBs during the week.
The CBN, however, took advantage of the oversubscription triggered by the inflow to lower interest rate (stop rate) on TBs.
At the auction on Monday the CBN reduced the stop rate for the 364-Days OMO rate by 10 basis points (bps) to 12.94 percent. The stop rate on the 199-day bill was also reduced by 7bps to 12.88 percent, while the 108-day bill rate was unchanged at 11.80 percent. The apex bank also reduced stop rates by seven basis points (7bpts) across all tenors offered at the auction held on Thursday.
Meanwhile, the liquidity mop up action of the CBN prompted cost of funds to rise sharply in the interbank money market with average short term interest rate rising by 3960bpts
According to data from FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending rose by 385 bpts to 9.14 percent last week from 5.29 percent the previous week. Similarly, interest rate on Overnight lending rose by 407 bpts to 10 percent last week from 5.93 percent the previous week.
This week, the interbank money market will experience inflow of N140.9 billion from maturing TBs, comprising maturing primary market TBs worth N33.8 billion and maturing OMO bills worth N107.1 billion. While the CBN will issue N33.8 billion worth of primary market TBs to replace the maturing ones, it is also expected to conduct OMO auction to mop up liquidity from the maturing N107.1 OMO bills.
According to analysts at Lagos based investment firm, Afrinvest Plc, “We expect the CBN to hold OMO auctions in the coming week, given that instruments worth N140.9 billion are expected to mature.”
Also projecting, analysts at Lagos based Cowry Assets Management Limited, said: “In the new week, CBN will rollover T-bills worth N33.84 billion, viz: 91-day bills worth N3.39 billion, 182-day bills worth N16.92 billion and 364-day bills worth N13.54 billion. We expect their stop rates to decrease marginally, given the increasing preference for fixed income assets by investors.”
External reserves maintain upward trend at $44.84bn
The nation’s external reserves maintained its upward trend last week as it rose to $44.843 billion on Wednesday May 8 from $444.792 billion at the end of last month. This translates to $51 million accretion to the external reserves in the first eight days of this month.
Explaining the factors sustaining the upward movement of the reserves, analysts at Afrinvest said: “We believe that the sustained increase in foreign portfolio buying interest in the fixed income market is largely responsible for the accretions to the reserves although we also acknowledge that stable oil prices and output have continued to favour increased forex earnings.”
Naira depreciates in I&E as turnover fall by 23 per cent
The naira depreciated in the Investors and Exporters (I&E) window last week following 23 percent decline in volume of dollars traded in the window.
Data from FMDQ showed that the indicative exchange rate for the window rose to N360.88 per dollar last week from N360.65 per dollar the previous week, translating to 23 kobo depreciation for the naira.
The naira, however, remained stable at N359 per dollar in the parallel market last week.
The volume of dollars traded in the window (turnover) fell by 23 percent to $770 million last week from $1 billion the previous week.