October 30, 2017

Excess liquidity to persist as N214bn inflow boost interbank

File: Banks

External reserves rise by $1.1bn to $33.6bn

By Babajide Komolafe

THE interbank money market will  this week enjoy inflow of N214 billion which will reinforce the volume of idle cash (excess liquidity) in the market leading to further moderation in cost of funds.

The market opened last week with severe scarcity of funds, as market liquidity fell to minus N294 billion as at Tuesday, October 26. Relief, however, came on Thursday with N367 billion inflow comprising matured treasury bills of N94 billion and statutory allocation funds of N273 billion.

The inflow triggered sharp decline in cost of funds with average short term interest rate falling 968 basis points (bpts), while the market ended the week with surplus liquidity of N145 billion.

According to the Financial Market Dealers Quote (FMDQ), interest rate on Collateralised funds (Open Buy Back, OBB) fell by 941 bpts to 15.83 per cent on Friday from 110 per cent the previous week. Also, interest rate on overnight lending fell by 995 bpts to 18.75 percent from 118.3 percent the previous week.

Reflecting the improved market liquidity at the end of the week, the N305 billion worth of treasury bills (TBs) offered by the Central Bank of Nigeria (CBN) recorded significant over-subscription, as investors demanded for N591 billion worth of bills, while the CBN sold N576 billion.

This week, the market will receive inflow of N214 billion from maturing bills comprising N101.47 billion worth of maturing OMO bills and N112.87 billion worth of primary market bills. There is also expectation of further inflow from the N558 billion statutory allocation disbursed by the Federation Accounts Allocation Committee (FAAC) last week.

While the market is expected to experience outflow of N112.87 billion through TBs floatation, the inflows above are expected to reinforce the surplus liquidity in the market, except the apex bank conducts aggressive liquidity mop up through special TBs.

Naira stable as CBN injects N480m

Meanwhile the stability of the Naira in the foreign exchange market persisted last week even as the CBN injected $480.7 million into the interbank foreign exchange market.

At the parallel market, the Naira remained stable at N363 per dollar, due to weak dollar demand. At the Investors and Exporters (I&E) window, the indicative exchange rate inched down to N360.31 per dollar on Friday from N360.32 per dollar the previous week, translating to marginal appreciation of one kobo for the Naira.

The CBN last week stepped up its weekly intervention in the foreign exchange market as it conducted a special auction to sell N285.76 million to meet dollar requests in four sectors of the economy.

According to the apex bank, the agricultural, airlines, petroleum and raw materials were the four sectors that received various sums in forex allocation based on requests put forward by their respective banks.

The $285.76 million special auction, combined with the weekly injection of $195 million held on Monday, increased its intervention to $480.7 million for the week.

Confirming the special auction, the Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor, said the releases underlined the high levels of transparency of the bank in foreign exchange management.

According to him, the CBN would continue to play its role in  easing the foreign exchange pressure on manufacturing and agricultural sectors through sales under the new flexible Foreign Exchange regime.

External reserves rise by $1.1bn  to $33.6bn

In a related development, the nation’s external reserves maintained upward trend in October, rising by $1.1 billion to $33.62 billion

Data by the CBN showed that the external reserves rose from $32.49 billion at the end of September to $33.62 billion as at Tuesday October 25th  last week. This represents $1.13 billion increase in external reserves for the month.

When compared to $25.81 billion at the close of last year, the reserves had risen by $7.81 billion this year. With increased dollar revenue from crude oil courtesy improved crude oil price, as well as increased flow from autonomous sources, especially from offshore investors through the Investors and Exporters (I&E) window of the foreign exchange market, the reserves are expected to continue to rise in the last two months of the year.