By Babajide Komolafe
The interbank money market recorded net outflow of N262 billion in January even as oil firms boosted foreign exchange supply with $1.1 billion.

The interbank money market is where banks and the Central Bank of Nigeria (CBN) lend and borrow from each other.

A review of the activities in the market in January showed  inflow of  N630 billion and outflow of  N932.36  billion, translating to net outflow of N262.5 billion.

Sources of inflows were parastatals funds (N70 billion), Cash Call funds (N35 billion), statutory allocation to states and local governments (N280 billion) and matured treasury bills (N245.47 billion).

On the other hand, N303 billion left the market for foreign exchange purchase, and N422.6 billion was used to purchase government securities and bonds, while the Nigerian National Petroleum Corporation withdrew N206.75 billion.

The huge net outflow prompted market liquidity to fall drastically to N1.2 billion from N359.45 at the beginning of the month.

Despite the sharp fall in market liquidity, cost of funds closed the month at lower levels courtesy of statutory allocation funds that boosted market liquidity in the last two days of the month.

Data from Financial Market Indicators show that interest rates on Call, 7-Days and 30-Days lending closed at 13.83, 14.29 and 14.71 per cent, down from 14.08, 14.63 and 15.25 per cent respectively at the beginning of the month.

In the first week ending January 6, the market was liquid as inflows of N70 billion for funding of parastatals and N35 billion cash call funding moderated the impact of outflow of N138 billion for treasury bill purchases and N47.83 billion for foreign exchange purchases. Consequently, the market closed with N290 billion liquidity while cost of funds fell by about 50 basis points.

In the second week ending January13, though market activities were paralysed by the week-long strike action, the market recorded outflow  of N103.67 billion through treasury bills purchases (N37.55 billion) and foreign exchange purchases (N66.12 billion).

The market revived in the third week ending January 20  but experienced outflow of N34.75 billion through NNPC’s withdrawal and N70.96 billion for foreign exchange purchases. This and other activities caused market liquidity to fall sharply by about 70 per cent to N82 billion. Consequently, cost of funds rose moderately, with interest rate on call lending rising by 100 basis points while 7-Days lending rose by 71 basis points.

Market activities further picked up in the fourth week ending January 27, with outflows of   N172 billion through NNPC’s withdrawal, N79.3 billion for foreign exchange purchases, N208.86 billion for treasury bills purchases, and N73.66 billion for purchase of FGN bonds floated by the Debt Management Office (DMO).

On the other hand, N95.47 billion came into the market through maturing treasury bills. The resulting net outflow of N438.35 billion triggered scarcity of funds, which compelled banks to leverage on the Standing Lending Facility (SLF) of the CBN to borrow N629.11 billion during the week. The scarcity of funds also caused cost of funds to rise sharply with interest rate on Call lending rising to 16 per cent from 14.42 the previous week.

The scarcity of funds however subsided in the two days of the month when the market experienced inflow of about N280 billion statutory allocation funds to states and local government. Although the market experienced outflow of N39.3 billion through foreign exchange purchase funding,  cost of funds fell significantly to close the month at lower levels than the previous month.