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Interest rate volatility to persist amidst N350bn inflow

By Babajide Komolafe

THE volatility in interest rate in the interbank money market is expected to persist this week despite inflow of N350 billion from matured treasury bills.

The inflow is expected to moderate sharp rate hikes, witnessed last week on the heels of liquidity squeeze occasioned by foreign exchange funding by banks.


But the liquidity squeeze had forced low patronage on government securities last week as investors’ apathy ruled the interbank money market.

Huge dollar sale by the Central Bank of Nigeria (CBN) triggered massive outflow of funds from the interbank money market, which caused wide volatility in cost of funds.

From below 20 per cent the previous week, short term interest rate rose to 200 per cent on Wednesday before falling to less than 70 per cent at the close of business on Thursday.

According to Data by Financial Market Dealers Quote (FMDQ), interest rate on Overnight borrowing which closed 15.25 per cent the previous week, jumped to 22.75  per cent on Monday,  145.25 per cent on Tuesday and 200 per cent on Wednesday but dropped to 66.83 per cent on Friday.

Similarly, interest rate on Collateralised borrowing (Open Buy Back, OBB), which closed  14.67  per cent the previous week, jumped to 21.67 per cent on Monday, to 140.83 per cent on Tuesday, and to 196 per cent    on Wednesday, but dropped to 60.83 per cent on Friday.

This trend according to analysts at FBN Merchant Bank Limited will persist this week despite inflow of N350.6 billion into the interbank money market through matured treasury bills.

The impact of this inflow on market liquidity and cost of funds, they observed, will be moderated by outflows of N167.5 billion for treasury bills investment and also outflow for    dollar sale by the CBN.

Investors shun government securities

Government securities, treasury bills and FGN Bonds recorded under-subscription last week, due to investors’ apathy prompted by the intense scarcity of funds in the interbank money market.

Result of Treasury bill sales revealed that the N70 billion worth of secondary market (open market operations) bills offered by the CBN recorded 44 per cent subscription, as investors demanded only N31.3 billion with bid rates ranging from 18 per cent to 18.6 per cent.

Similarly the N135 billion worth    of FGN bonds offered by the Debt Management Office (DMO) recorded 96 per cent subscription, as investors demanded N130 billion, with bid rates ranging from 15.5 per cent to 17.5 per cent. The offer comprises N35 billion worth of five year bond, N50 billion worth of 10 year bonds, and N50 billion worth of 20 year bonds. The DMO was however able to sell N15 billion worth of five year bonds at    coupon rate of 15.98 per cent; N34 billion of    10 year bonds    at coupon rate of    16.24    per cent; and N56.26 billion worth of    20 year bonds at coupon rate of 16.24 per cent.

Investment in FGN Savings bonds drop by 33%

Meanwhile the second batch of the newly created FGN Savings Bonds recorded lower patronage as value of investment dropped sharply by 33 per cent.

Analysis of the 2-year and 3-year FGN Savings bond offered this month by the DMO revealed that the number of successful subscription for the two bonds dropped to 1,798 from 2,575 recorded for the 2-year bond offered in March. Also the value of investment dropped to N1.28 billion from N2.1 billion recorded in March.

Further analysis reveal that the 2-year bond which matures April 2019 attracted N419.33 investment from 841 successful subscriptions; while the 3-year bond which matures April 2020 attracted N868.7 million from 957 successful subscriptions.

Naira expected to appreciate: The naira is expected to appreciate below N400 per dollar market this week, due to increased dollar injection by the CBN into the various segments of the foreign exchange market.

For example, the CBN will this week increase weekly dollar sale to bureax de change (BDCs) by 100 per cent to $40,000 per BDC in a bid to address the depreciation of the naira in the last two weeks, during which    the parallel market exchange rate moved from N375 per dollar to N410 per dollar.

According to the President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, the increased dollar inflow will enhance the value of the naira in the parallel market, adding that this will deal a major blow to those who have been speculating that the recent appreciation of the naira cannot be sustained by the CBN. Also Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okoroafor on Thursday reiterated the determination of the apex bank to sustain its intervention in the foreign exchange market. He said that the intervention has already led to a decline in banks’ demand for dollars as evident in the sale of $100 million last week.

He said that the banks were only able to pick $45 million out of the $100 million offered by the CBN on wholesale spot.

He said the major injections made by the Bank in the course of the week were aimed at providing access to all stakeholders with legitimate need for forex.

“The CBN remains upbeat that the forex market will remain liquid and that Nigerians who genuinely require the forex will get ample access to the currency,” Okorafor noted.

Last week the CBN offered $350 million to banks including $250 million on 7 to 30 day forwards for agriculture, airline, petroleum products and raw materials. The CBN also offered $100 million for $100 million for Basic/Personal Travelling Allowance, medicals and tuition fees.

Consequently, the CBN, since Monday February 20th 2017, when it announced new measures to boost dollar supply and forestall the declining fortunes of the naira in the parallel market, has      injected $3.35 billion by intervening in the forex market 18    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; Thursday March 16, $100 million.

Monday March 20, $143 million; Thursday March 23rd, $100 million; Monday March 27, $185 million; Thursday March 30, $100 million; Monday April 3rd, N240 million; Thursday April 6th, N100 million; Monday April 10, $100 million and Wednesday April 12, $250 million. The naira however depreciated to N405 per dollar in the parallel market last week due to resurgence of demand. From N390 per dollar the previous week, the parallel market exchange rate rose to close at N405 per dollar. .



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