THE interbank money market will, this week, receive liquidity boost of N193 billion from maturing treasury bills prompting further decline in cost of funds.
Last week, the market was gripped with intense scarcity of funds, which caused cost of short term funds to rise above 100 per cent in the first half of the week, before dropping below 15 per cent in response to inflows from matured treasury bills (TBs) and statutory allocation funds.

In the early part of the week, the market experienced outflow of N249 billion comprising N193 billion for investment in TBs and N56 billion for investment in FGN Bonds.
This, in addition to outflow for dollar purchase caused market liquidity to drop from N9 billion surplus on Monday to deficit of N258.84 billion on Thursday.
Relief, however, came from inflow of N224 billion from statutory allocation of fund to the three tiers of government, and from payment of matured TBs worth N88.9 billion. Cost of funds is expected to further fall this week in response to the anticipated liquidity inflow of N193.14 billion. “The interbank market is expected to be liquid due to open market operations’ (OMO) maturity,” projected analysts at Lagos based FBN Merchant Bank.

Analysts at Lagos based Cowry Assets Management Plc similarly stated: “This week, we expect maturities via primary market worth N88.14 billion viz: 91-day bills worth N26.14 billion and 182-day bills worth N62 billion; even as FAAC disbursements are expected to hit the financial system. Hence, we look forward to financial system liquidity ease and resultant decline in interbank rates.”

Naira appreciates as turnover in I&E window drops by $133bn
The Naira appreciated marginally last week in the Investors and Exporters (I&W) foreign exchange window, even as the volume of dollars traded dropped by $133 billion.

Data from the Financial Market Dealers Quote (FMDQ) showed that the volume of dollars traded in the window dropped to $791.54 million last week, from $925.38 million the previous week, indicating 14.4 per cent decline.

However, the naira maintained its upward trend in the window, appreciating by 42 kobo against the dollar. According to FMDQ, the indicative exchange rate for the window, also known as Autonomous Foreign Exchange (NAFEX), dropped to N359.56 per dollar at the close of business last week, from N359.98 per dollar the previous week.

Wholesale segment

Vanguard analysis showed that the naira has appreciated by N7.5 for four consecutive weeks in the I&E window. The naira, however, remained stable at N370 per dollar in the parallel market throughout last week.

Meanwhile the Central Bank of Nigeria (CBN) sustained its intervention in the foreign exchange market last week by injecting $195 million into the interbank market.

According to Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor, the apex bank auctioned $100 million in the wholesale segment of the inter-bank Foreign Exchange market, and intervened in the Small and Medium Enterprises (SMEs) and invisible segments, with the sum of $50 million and $45million respectively.

The apex bank also sustained its bi-weekly dollar sale of $40,000 to each bureaux de change (BDCs) across the country.

CBN creates liquidity windows for Non-Interest Banks
Last week, the CBN created two facilities to allow Non-Interest Banks (NIBs) enjoy overnight and intra-day liquidity support.
The facilities are: Funding for Liquidity Facility ( FfLF), which allows NIBs to borrow and repay the next day (overnight); and Intra-day Facility (IDF), which allows NIBs to borrow and repay same day.

Director, Financial Markets Department, CBN, Dr. Alvan Ikoku announced the facilities in a circular titled: “Introduction of Two New Instruments- Funding for Liquidity Facility (FfLF) and Intra-day Facility (IDF) for Non-Interest Banks.

Speaking on the FfLF, he said: “CBN is to provide a liquidity facility on overnight basis only and to be terminated on next business day; Authorised Non-Interest Financial Institution (NIFI) to provide eligible securities to the CBN as collateral for the facility; the value of collateral to be a minimum of 110 per cent of the value of the facility.

“The CBN shall specify acceptable collateral(s) from time to time. These shall include, but not limited to the following securities: CBN Safe Custody Account (CSCA) Deposit, CBN Non-Interest Note (CNIN), CBN Asset-Backed Security (CBN-ABS), Sukuk (that has received liquidity status from the CBN), Warehouse Receipt(s) as provided in the CBN Act 2007, and any other collateral designated by the CBN that does not contravene the CBN guidelines for NIFI’s operations,
“The transaction shall be at a zero per cent interest rate.

The opening hours for FfLF shall be between 2.00pm -3.30pm, and terminated on commencement of next business day. At maturity, the transaction unwinds and the CBN receives back its funding and returns the collateral to the NIFI. Failure to provide adequate funding in the account for the un-winding of terminated at maturity, the Bank (CBN) shall rediscount the pledged securities at par and recover the facility amount and return the net value to the NIFI.” On features of the IDF, Ikoku said: “CBN is to provide an IDF for settlement same business day. Authorized NIFI shall provide eligible securities as collateral for the facility and the value of eligible securities shall be a minimum of 110 percent of the value of the IDF required by the NIFI. The CBN shall specify acceptable collateral(s) from time to time.

These shall include, but not limited to the following securities: CBN Safe Custody Account (CSCA) Deposit, CBN Non-Interest Note (CNIN), CBN Asset-Backed Security (CBN-ABS), Sukuk (that has received liquidity status from the CBN), Warehouse Receipt(s) as provided in the CBN Act 2007, and any other collateral designated by the CBN that does not contravene the CBN guidelines for NIFI’s operations.”
He said, “The operating hours for the IDF shall be between 9.00a.m and 2.30 p.m. Repayment of the IDF shall be between the hours of 10.00 a.m. and 3.00 p.m. each business day. At termination, the transaction unwinds and the CBN receives back its funding and returns the collateral securities to the NIFI. In the event of failure to repay the IDF as and when due, the CBN shall rediscount the pledged securities at par and recover the facility amount and return then net value to the NIFI.”