FAAC Logjam Triggers Uncertainty As N409bn Inflow Boost Liquidity


The delay in the release of statutory allocation funds due to the inconclusive meeting of the Federation Accounts Allocation Committee, FAAC, last week has triggered uncertainty over direction of cost of funds in the interbank money market this week. This is in spite of liquidity boost of N409 billion expected from maturing treasury bills this week.

Last week, the statutory allocation funds delay, combined with liquidity mop up of N183.27 billion by the Central Bank of Nigeria, CBN, through Open Market Operations, OMO, bills triggered scarcity of funds which prompted cost of funds to rise contrary to analysts’ projections for the week. As a result average interest rate on short term funds rose by 10.42 percentage points to 13.63 percent last week from 3.2 percent the previous week.

According to data from FMDQ, interest rate on Collateralised lending (Open Buy Back, OBB) rose by 1,034 basis points (bpts) to 13.17 percent last week from 2.83 percent the previous week. Similarly, interest rate on Overnight lending rose by 1,050 bpts to 10.5 percent last week from 3.58 percent the previous week. The possibility of this trend persisting this week is dependent on the conclusion of the FAAC meeting and subsequent release of statutory allocation funds.

Though the market will receive inflow of N409 billion from maturing TBs this week, the impact on market liquidity will be constrained by outflow of N170.5 billion through primary market (fresh) TB auction to be held by the CBN this week. The resulting net inflow of N239 billion may not be adequate to moderate cost of funds especially given possibility of further OMO bills issuance by the CBN.

Naira depreciate as I&E turnover fall by 38%

The naira depreciated last week by 28 kobo in the Investors and Exporters, I&E, window prompted by 38 percent decline in volume of dollars traded. According to FMDQ, the volume of dollars traded (turnover) in the window dropped to $796 million last week from $1.29 billion, indicating 38 percent decline.

As a result the indicative exchange rate for the window rose to N361.32 per dollar last week from N361.04 per dollar the previous week, indicating 28 kobo depreciation for the naira. The naira however remained stable at N360 per dollar in the parallel market,

Meanwhile the CBN increased its weekly intervention in the foreign exchange market to $318.73 million. In addition to the weekly injection of $210 million through the interbank foreign exchange market, the apex bank injected $318.73 million through the Secondary Market Intervention Sales, SMIS, conducted on Friday.

Economic expansion picks up in June-CBN PMI report

The CBN on Friday released its Purchasing Managers Index, PMI, report for June which indicated pick-up in expansion of activities in the manufacturing and non manufacturing sectors. The report said that the Manufacturing PMI grew faster in June to 57 percent from 56.5 percent in May while the non-manufacturing PMI also grew faster to 57.5 percent from 57.3 percent in May.

According to the CBN, out of the 31 subsectors surveyed in the period under review, 24 recorded growth. The report stated: “The Manufacturing PMI in the month of June stood at 57.0 index points, indicating expansion in the manufacturing sector for the fifteenth consecutive month. The index, however, grew at a faster rate when compared to the index in the previous month.

“Of the 14 subsectors surveyed, 10 reported growth in the review month in the following order: paper products; furniture and related products; printing and related support activities; food, beverage and tobacco products; plastics and rubber products; electrical equipment; textile, apparel, leather and footwear; chemical and pharmaceutical products; petroleum and coal products and nonmetallic mineral products. The transportation equipment; fabricated metal products; primary metal; and cement subsectors declined in the review month.

“The composite PMI for the non- manufacturing sector stood at 57.5 points in June 2018, indicating expansion in the non-manufacturing PMI for the fourteenth consecutive month. The index grew at a faster rate when compared to that in May 2018. Fourteen of the 17 subsectors recorded growth in the following order: repair, maintenance/washing of motor vehicles; agriculture; information and communication; professional, scientific and technical services; finance and insurance; utilities; water supply, sewage and waste management; health care and social assistance; real estate rental and leasing; electricity, gas, steam and air conditioning supply; wholesale/retail trade; construction; management of companies; and transportation and warehousing.

“The arts, entertainment and recreation subsector remained unchanged, while the accommodation and food services; and educational services subsectors recorded contraction in the review period”.
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