By Babajide Komolafe

Oil firms boosted foreign exchange supply in March selling $1.32 billion, representing 190 per cent increase when compared with $454 million sold in the previous month.

Foreign exchange offered  and sold by the Central Bank of Nigeria (CBN) during the month, however, dropped, causing the naira to depreciate marginally at the official and interbank segments of the foreign exchange market.

Foreign exchange offered by the apex bank dropped to $1.35 billion from $2.1 billion in February, while the amount sold also fell by 19 per cent to $1.49 billion.

Consequently, the official exchange rate rose to N156.01 per dollar at the end of the month from N155.9 per dollar at the end of the previous month. This represented 11 kobo depreciation of the naira in the official market.

At the interbank foreign exchange market, the naira depreciated by 23 kobo as the interbank exchange rate rose to N157.75 per dollar (mark-to-market) from N157.52.

Interbank market records N451bn net outflow
Scarcity of funds, however, dominated the interbank money market, as the market experienced net outflow of N451 billion, which caused cost of funds to close higher than the level in the previous month.

Funds that came into the market (inflow) in the month rose by 24 per cent to N798.85 billion, but funds that left the market (outflow) rose higher by 55 per cent to N1.25 trillion.

Sources of inflow were mature treasury bills (N378.85 billion), Statutory Allocation fund (N248 billion) and Excess Crude Account (N172 billion). Sources of outflow were investment in treasury bills (N893.82 billion), Foreign exchange purchases (N181.05 billion), FGN Bond purchase (N50 billion), Nigeria Deposit Insurance Corporation, NDIC premium (N52.87 billion), Nigerian National Petroleum Corporation, NNPC withdrawal (N72.91 billion).

The heavy net outflow from the market caused interbank market to be on the upward trend for most part of the week, closing 184 basis points higher than the levels in February. Interest rate on Call lending closed at 15.54 per cent, up from 13.46 per cent in February. 7-Days lending rose to 15.92 from 14 per cent, while 30-days lending closed at 16.21, up from 14.67 per cent.

Market liquidity (idle funds) dropped sharply to N67.32 billion in the first week closing Friday 9th, from N206 billion at the end of February. This was prompted by outflow of N426 billion from treasury bills (TBs) and foreign exchange purchases. Though the impact of the outflow was moderated by inflow of N116.76 billion from Excess Crude Account and matured TBs, the resulting net outflow of N310.1 billion was caused cost of funds to rise by 77 basis points.

In the second week ending March 16th, the market experienced outflow of N182.95 billion from NNPC withdrawal, NDIC premium, and foreign purchase.  This worsened market liquidity, which fell further to minus N103 billion. Consequently, cost of funds rose further on the average by 170 basis points with call rising to 15.62 per cent while 7-Days and 30 Days rose respectively to 16.0 and 16.38 per cent.

The rate rise was however reversed in the third week ending March 23rd, as market inflow of N448 billion from statutory allocation, Excess crude account and matured TBs. The inflow subdued the impact of outflow of N393.07 billion from TBs and foreign exchange purchases, causing market liquity to rise to N194 billion. Consequently cost of funds  fell on the average by 240 basis points. Interest rates on Call, 7-Days and 30-Days lending  fell respectively to 12.96, 13.42, and 14.42 per cent.

The decline in cost of funds was, however, reversed in the fourth week ending March 30th as market liquidity (idle funds) fell sharply to N7.8 billion due to outflow of N249.77 billion from FGN Bonds, TBs and foreign exchange purchases. The outflow overshadowed the inflow of N103.84 billion from matured TBs. As a result cost of funds rose on the average by 229 basis points, with interest rate on   Call, 7-Days and 30-Days lending  rising to close the month at 15.53, 15.92 and 16.21 per cent.

Net investment in govt securities up by 120%
Government securities (treasury bills) recorded 120 per cent increase in net investment, which rose to N514.97 billion in March from N234.07 billion in February.

The CBN on behalf of the federal government offered N852.14 billion worth of treasury bills (bills), representing   27 per cent increase when compared to the N669.28 billion offered the previous month.  Total demand (subscription) for the bills rose by 58 per cent to N2.095 trillion while total amount of bills sold doubled to N893, 82 billion from N446.98.

The apex bank offered N450 billion worth of previously issued (secondary market or Open Market Operation, OMO), down by 13.5 per cent from N520 billion in February.  Investors, however, demanded N1.15 trillion, up by 14 per cent, while the CBN sold N491.59 billion, 65 per cent more than it sold in February.

N402.14 billion worth of newly issued (primary market) bills were offered, representing 167 per cent increase but investors demanded for N945.02 billion, 199 per cent than the previous month, while N402.23 billion was sold by the apex bank.

On the other hand, N378.85 billion worth of TBs matured and was paid for by the apex bank during the month. This represented 77 per cent compared to N212.91 billion matured bills that were paid for in February.