N425bn inflow from MTBs to boost market liquidity as Cost of funds dips


By Babajide Komolafe


COST of funds in the interbank money market is expected to moderate downward this week as N425 billion inflows from maturing treasury bills boost market liquidity. Last week, cost of funds rose moderately, as the Central Bank of Nigeria (CBN) mopped up N256 billion through Open Market Operation (OMO) treasury bills (TBs), which cancelled the impact of N215 billion inflows from maturing TBs. Consequently, average short term interbank interest rate rose by 130 basis points (bpts) to 5.1 percent last week from 3.8 percent the previous week. Data from FMDQ showed that interest rate on Collateralised lending (Open Buy Back, OBB) rose by 150 bpts to 4.83 percent last week from 3.33 percent the previous week. Similarly, interest rate on Overnight lending rose by 111 bpts to 5.33 percent from 4.22 percent the previous week. Last week, the CBN achieved little success in its efforts to mop up excess liquidity from the interbank money market. Financial Vanguard analysis revealed that the N700 billion worth of OMO bills offered by the apex bank recorded 71 percent under-subscription. On Monday the apex bank offered N350 billion worth of 108-Days and 234-Days TBs. Investors however shunned the 108-Days bills, while purchasing N41 billion worth of the 234-Days bills at 12.15 percent stop rate. Also, the apex bank on Thursday, offered N400 billion worth 112-Days bills and 238-Days bills while investors purchased N191 billion at stop rates of 11.05 percent and 12.15 percent respectively. Consequently, the market closed with N368 billion excess liquidity, with the Standing Deposit Facility (SDF) attracting N736.52 billion from banks, 23 percent higher than the N279.32 billion attracted by the    Standing Lending Facility (SLF) during the week. This week, the market will enjoy inflow of N424 billion from maturing TBs, out of which the CBN will roll over N180.86 billion via primary market auction. The net inflow combined with the lack lustre demand for OMO bills    will lead to further    build up in market liquidity    prompting decline in cost of funds. External reserves shelve $180m in 7days The downward trend of the nation’s external reserves persisted last week, falling    by $180 million in the first week of June. Data from the CBN showed that the external reserves dropped to $47.435 billion on Thursday June 7th, from $47.602 billion Thursday May 31st, translating to $180 million decline in seven days. Thus the reserves have fallen by $357 million since May 18th  when it peaked at $47.799 billion. The persistent decline in external reserve is occasioned by increased dollar sales by the CBN aimed at arresting the depreciation of the naira triggered by increased demand for dollars, mostly from foreign portfolio investors exiting the nation’s financial market. However, the naira appreciated in the parallel market last week, reflecting the effectiveness of the increased dollar sale by the apex bank. In the parallel market, the naira appreciated by N2, helped by the    50 percent increase in dollar sales to bureaux de change (BDCs) by the apex bank as well as the reduction in the BDC dollar rate to N360 per dollar from N362 per dollar. As a result the parallel market exchange rate dropped to N361 per dollar last week from N363 per dollar the previous week. The naira however depreciated by six kobo in the I&E window, as the indicative exchange rate rose to N360.91 per dollar last week from N360.85 per dollar the previous week. The slight    depreciation follows 23 percent decline in volume of dollars traded (turnover) in the window, which fell to $1.36 billion last week from $1.77 billion the previous week. On its part the CBN sustained it weekly intervention of $210 million in the interbank foreign exchange market. Analysts project 11.65% inflation rate for May Analysts have projected 11.65 percent inflation rate for May, representing the 16th  consecutive monthly decline in the inflation rate. The projection is coming ahead of the expected release of the May inflation data this week by the National Bureau of Statistics (NBS). While FSDH Merchant Bank analysts projected 11.5 percent inflation rate for May, analysts at Financial Derivatives Company (FDC) projected 11.8 percent, translating to average projection of 11.65 percent. According to FDC analysts, “Headline inflation is expected to slow further in May, falling by 68bps to 11.8 percent from 12.48 percent    in April. This will mark the 16th consecutive monthly decline and the lowest rate of inflation since February 2016. On their part, FSDH analysts stated: “ FSDH Research expects the inflation rate (year-on-year) to drop to 11.50 percent    in May 2018 from 12.48 percent recorded in the month of April. The drop in the inflation rate is expected as a result of the base effect in the Composite Consumer Price Index (CCPI) from the previous year. We note however, that most consumer prices recorded elevated prices in the month of May.”

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