By Babajide Komolafe
Cost of funds rose sharply in the interbank money market last week in response to outflow of N451 billion to fund in investment in government securities.
Vanguard investigations revealed that interest rates on short term funds, which opened the week at 11 per cent rose to 16 per cent at the close of business on Friday. This was due to scarcity of funds triggered by outflow of N451 billion comprising N292 billion investment in treasury bills and N160 billion investment in FGN bonds as well as purchase of foreign exchange via the special dollar sales by the Central Bank of Nigeria (CBN).
Analysis of treasury bills and FGN Bonds offered during the week indicated oversubscription prompted by the attractive interest rates on the instruments.
The N160 billion worth of FGN bonds offered by the Debt Management Office (DMO) recorded 35 per cent oversubscription, with total public subscription at N216 billion. The FGN bonds were issued at an average interest rate of 16.2 per cent, while bid rates ranged from 15.5 per cent to 17 per cent.
Secondary market bills
Similarly, the N205 billion worth of Primary Market treasury bills offered by the CBN recorded 30 per cent oversubscription, as investors demanded for N266 billion. The 91-day, 182-day and 364-day bills were issued at stop rates of 13.6 per cent, 17.2 per cent and 18.6 per cent respectively.
But the N70 billion worth of secondary market bills offered by the CBN recorded under-subscription as investors demanded for N41 billion.
CBN forex intervention rises to $2.25bn: The CBN last week increased its intervention in the foreign exchange market to $2.25 billion last week, with additional sale of $440 billion. The additional dollar sales triggered 3.2 per cent appreciation of the naira in the parallel market during the week as the parallel market exchange rate dropped to N445 per dollar from N460 per dollar the previous week.
Since Monday February 20, 2017, when it announced new measures to boost dollar supply and forestall the declining fortunes of the naira in the parallel market, the CBN has injected $2.25 billion by intervening in the forex market ten times as follows: Tuesday February 21st, $417 million; Thursday February 23rd, $231 million; Monday February 27th, $180 million; Friday March 3, $350 million; Monday March 6, N367 million; Tuesday March 7, $100 million; Thursday March 9, $170 million; Tuesday March 14, $190 million; Wednesday March 14, $150 million; and Thursday March 16, $100 million.
During this period, the naira appreciated by N75 or 14.4 per cent in the parallel market where the exchange rate fell from N520 on February 20th to N445 last week.
Analysts at Afrinvest Plc, a Lagos based investment firm, opined that the CBN will continue its intervention in the foreign exchange market in view of sustained upward trend of the external reserve. In the week ahead, we expect the Apex Bank to continue its drive to boost FX liquidity in the market. Current external reserves level of $30.3bn (March 15, 2017) suggests that the CBN is in a healthy position to continue dollar sales to the market.,” they said.
Report shows division over future of interest rate
Meanwhile, the CBN report on Inflation Attitude survey in the first quarter of 2017 has shown that bank customers are divided over the direction of interest rates in the next 12 months.
According to the survey, 38 per cent of the respondents surveyed believe that interest rates will go up while 29 per cent believe that they will fall.
However, more than half of the respondents said that decline in interest rates will be of personal benefit to them; while more than 40 per cent said that the decline in interest rate will be of benefit to the economy.
The report stated: “On whether interest rates on bank loans and savings would rise or fall over the next 12 months, 38.3 per cent of the respondents were of the view that the rates will rise, while 29.3 per cent believed that the rates will fall. The net rise value of 9.0 per cent was achieved compared to -0.5 per cent attained in the corresponding quarter of 2016. A little less than one-third of the respondents either expected no change or had no idea.
“Respondents were asked whether it would be best for them personally for interest rates to rise or fall. Their answers showed that 55.7 per cent indicated that it would be best for them personally if interest rates goes down, 17.4 per cent indicated it would make no difference, while 15.8 per cent of the respondents opted for higher interest rates. The results further revealed that 11.1 per cent had no idea.
“Similarly, the respondents were asked whether it would be best for the Nigerian economy for interest rates to rise or fall. Their answers showed that 40.3 per cent indicated that it would be best for the Nigerian economy if interest rates fall, while 19.1 per cent of the respondents opted for higher interest”.
The survey also shows that more than half of respondents believed that interest rates rose in the past 12 months. It stated: “The percentage of respondent households who felt that interest rates had risen in the last 12 months rose by 7.2 percentage points to 54.6 in the current quarter, compared to 47.4 attained in Q1, 2016.
On the other hand, 13.0 per cent of respondents believed that interest rates had fallen, while 16.0 per cent of the respondents were of the opinion that the rates stayed about the same in the last 12 months. Also 16.4 per cent of the households had no idea.
The result revealed that majority of households perceived that interest on bank loans and savings rose over the past 12 months.”