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Scarcity of funds to persist as DMO issues N100bn bond

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Naira stable as 1,250 BDCs shun CBN dollar sales

By Babajide Komolafe

THE intense scarcity of funds that  gripped the interbank money market last week will persist this week as the Debt Management Office (DMO) issues N100 billion worth of FGN Bond.

Last week, the interbank money market experienced N343.2 billion outflow due to increased liquidity mop up by the Central Bank of Nigeria (CBN) through treasury bills (TBs). Financial Vanguard analysis revealed that the apex bank offered N353.8 billion worth TBs while public subscription stood at N403.9 billion.

At the secondary market where existing TBs are sold, total public subscription to the N220 billion worth of TBs offered by the CBN stood at N209.32 billion while the amount sold was N209.26 billion at stop rate ranging from 16 percent to 17.83 percent.

At the primary market, where fresh TBs are sold, the CBN offered N133.8 billion which attracted subscription of N194.6 billion, while N133.9 billion was sold at stop rate ranging from 13.1 percent to 15.59 percent.

The huge outflow offset impact of matured TBs worth N133.8 billion, which came into the market on Thursday, triggered sharp increase in cost of funds, with average short term interbank rate rising by 800 basis points (bpts).

According to Financial Market Dealers Quote (FMDQ), interest rate on Collateralised (Open Buy Back, OBB) lending shot up by 766 bpts to close the week at 110 percent from 33.33 percent the previous week. Similarly, interest rate on overnight lending rose    by 830 bpts to 118.33 percent on Friday from 35.33 percent the previous week. The above scenario might be aggravated this week as the DMO will issue N100 billion worth of FGN Bond, comprising N50 worth of 5-year bond and N50 billion worth of 10-year bond.

With outflow for investment in the bond expected to cancel the impact of N93.7 billion inflow from    matured TBs, cost of funds might remain high    especially if the CBN issues TBs to sustain its liquidity mop operations.

Naira stable as 1,250 BDCs shun CBN dollar sales

Last week about 1,250 bureaux de change (BDCs) failed to participate in the CBN bi-weekly dollar sale to BDCs, even as the naira remained stable in the parallel market.

Financial Vanguard investigation revealed that most BDCs are finding it difficult to sell dollars purchased from the CBN due to the exchange rate which they termed ‘unfair’. A BDC Chief Executive who confirmed this to Financial Vanguard on Friday said: “I have been running at a loss since last month due to the unfair exchange rate at which the CBN sells dollars to us. This week one of the Tier 1 Banks sold dollars to its customers at N352 per dollar, meanwhile CBN sells dollars to us at N360 per dollar and expect us to sell to customers at N363 percent.

“How can you sell at N363 per dollar when the banks are selling at far lower rates? It has been very difficult for us. This week, about 1,250 BDCs did not participate in the CBN window. We have complained to them (CBN) and they told    us that the reason why they sell at N360 to us is because the dollars are from proceeds of remittances through international money transfer operators.”

Meanwhile, the naira remained stable in the parallel market last week, as the parallel market rate closed at N363 per dollar, the same level in the previous week.

The naira, however, appreciated by 11 kobo at the I&E window, as the indicative exchange rate dropped to N360.32 per dollar on Friday from N360.43 per dollar the previous week.

On its part the CBN sustained its weekly intervention in the foreign exchange market, by injecting $195 million into the interbank foreign exchange market on Monday.

Figures released by the apex bank showed that it offered $100million to the wholesale segment, while the Small and Medium Enterprises (SMEs) segment received the sum of $50 million. The invisibles segment, comprising tuition fees, medical payments and Basic Travel Allowance (BTA), among others, received $45 million.

Mr. Isaac Okorafor, the Acting Director, Corporate Communications Department of the CBN, confirming the development, said that the apex bank would continue to increase liquidity, aimed at meeting genuine demand in the market to enhance forex stability.

 

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