In spite of the increased aggressive liquidity mop up by the Central Bank of Nigeria, CBN, cost of funds is expected to fall further this week in response to inflow of N1.36 trillion into the interbank money market. Last week, cost of funds fell marginally in defiance of the liquidity mop up efforts of the CBN.
The Apex Bank had conducted Open Market Operation, OMO, Treasury Bills, TBs, auctions from Monday to Thursday, including a special auction on Thursday, mopping up N764.74 billion in the process. The impact of the huge outflow was, however, moderated by inflow of N497.82 billion from matured OMO treasury bills, leading to 250 basis points decline in average short term interest rates. CBN Headquarters Data from FMDQ showed that interest rate on Collateralised (Open Buy back, OBB) lending fell by 290 bpts to 21.67 percent last week from 24.57 percent the previous week.
Similarly, interest rate on Overnight lending fell by 213 bpts to 25.08 percent from 27.21 percent the previous week. This trend will likely be sustained this week in view of N1.36 trillion inflow into the market. The inflow comprises of maturing TBs worth N551.36 million and the N812.76 billion allocated to the three tiers of government last week by the Federation Accounts Allocation Committee (FAAC). These inflows according to analysts at Cowry Assets Management Limited, is expected to boost financial system liquidity and result in a corresponding downward trend in the Nigerian Interbank Offered Rates (NIBOR).
Why we retained tight monetary policy — CBN Analysts at Zedcrest Capital however projected a more aggressive liquidity mop up this week by the CBN which could forestall further moderation in cost of funds. “In the coming week, the CBN will likely resume its daily OMO auction offering to manage expected inflows from FAAC payments and OMO maturities. Due to the holidays and reduced trading sessions, we expect the CBN to be aggressive in the volumes on offer as it keeps a tight lid on system liquidity.”
CBN injects $11.3bn into interbank in 2018 Meanwhile the CBN has spent $11.3 billion to intervene in the interbank foreign exchange market this year. This comprise of weekly injection of $210 million in the interbank market with $100 million allocated to the wholesale segment, $55 million to SME window and $55 million to meet demand for invisibles such as Personal Travel Allowance (PTA), Business Travel Allowance, Medical bills, School fees.
In addition to this, the apex bank occasionally conducts special Secondary Market Intervention Sales (SMIS). Disclosing this in their review of CBN intervention in the foreign exchange market, analysts at Zedcrest Capital said: “The CBN interventions were in favour of the agricultural, airlines, petroleum products and raw materials and machinery sectors.
Also, invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others got CBN interventions. The bank has injected a total of $24.4 billion into the interbank segment of the forex market since it commenced its intervention in February 2017.” Meanwhile the naira recorded mixed performance in the foreign exchange market last week.
While the naira appreciated in the Investors & Exporters (I&E) window, it depreciated in the parallel market. According to naijabdcs.com, the live exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON), the parallel market exchange rate rose to N363 per dollar last week from N362.5 per dollar the previous week, indicating 50 kobo depreciation for the naira. The naira appreciated by 69 kobo in the I&E window as the indicative exchange rate dropped to N364.54 per dollar last week from N365.23 per dollar the previous week.
