•Investors inject $727m in I&E window

By Babajide Komolafe

Efforts by the Central Bank of Nigeria (CBN) to mop up idle cash (liquidity) is expected to persist this week, even as N170 billion inflow hit  the interbank money market.

Last week, in addition to the regular treasury bills (TB) issue, the CBN issued special TBs  (Open Market Operations, OMO) worth N100 billion, which drained liquidity from the interbank money market, and caused average short term cost of funds to rise by 450 basis points. As a result, interest rate on Collateralised (Open Buy Back, OBB) lending rose by 416 basis points to 30.83 percent on Friday from 26.67 percent the previous week. Similarly, interest rate on Overnight lending rose by 491 basis points to 32.58 percent from 27.67 percent the previous week.

This week, the CBN will  issue TBs worth N117.2 billion to mop up liquidity inflow from maturing TBs worth N170.6 billion.

While there are expectations of  inflow from statutory allocation worth over N500 billion, which  was expected last week from the Federation Accounts Allocation Committee (FAAC), analysts opined that the apex bank will step up its liquidity mop up efforts to offset the impact of these inflows on market liquidity.

In their projections for this week, analysts at Lagos based Afrinvest stated: “In the coming week, the CBN will be conducting a T-Bills auction of N117.2bn for all indicative tenors (91, 181 and 364-Days). We expect the impact on liquidity balance to be neutral given the scheduled maturity of the same amount. However, an OMO maturity of N53.4bn is expected buoy liquidity levels while we expect the CBN to mop up via OMO sales.”

The aggressive liquidity mop up of the CBN followed the decision of its  Monetary Policy Committee (MPC) to sustain the tight monetary policy stance by retaining its benchmark interest rates at the end of its meeting last week. The MPC  retained  the Monetary Policy Rate (MPR) at 14 percent. It also retained the Cash Reserve Ratio and Liquidity Ratio at 22.5 percent and 30 percent respectively. This represents the eight consecutive times the MPC will retain all its policy rates.

According to the CBN Governor, Mr. Godwin Emefiele, the Committee, “In arriving at the decision to retain the rate  the MPC took note of the gains made so far as a result of its earlier decisions including the stability in the foreign exchange market and the moderate reduction in inflation rate.

Speaking at the post Monetary Policy Committee (MPC) press conference held in Abuja, he said the MPC was faced with the decision “to hold, to tighten or ease policy stance”.

He said: “While tightening would strengthen the impact of monetary policy on inflation, with complementary effects on capital flows and exchange rate stability, it would nevertheless also potentially dampen paucity output for growth and financial stability as this would constitute a risk to the productive sector of the economy.

“On the other hand, whereas loosing would stimulate out for growth, by stimulating domestic aggregate demand, through reduced cost of borrowing, it could nevertheless aggravate upward trend in consumer prices and generate exchange rate pressures.

“Loosening could also worsen the current account balance of the country through increased importation.

Investors inject $727m in I&E window

The weekly volume of dollars traded in the Investors and Exporters (I&E) window rose by 8 percent to $727.9 million last week, indicating increasing investors’ confidence in the Nigerian economy.

Data from the FMDQ showed that weekly volume of dollars traded in the window rose to $727.9 million on Friday from $674.3 million the previous week.

As a result the naira recorded 15 kobo appreciation in the window, as the indicative exchange rate for the window fell to N360.25 per dollar from N360.4 the previous week.

Last week, the CBN Governor, Mr. Godwin Emefiele attributed the increased volume of dollars traded in the I&E window to increased investors confidence.

Speaking at the post Monetary Policy Committee (MPC) press conference, he said: “The Committee viewed with satisfaction, the growing patronage at the Investors’ and Exporters’ (I&E) window of the foreign exchange market and attributed the development to increased confidence by foreign investors and the preference of Nigerian investors’ and exporters’ for the window compared with all other windows. The MPC noted that the I&E window had increased liquidity and boosted confidence in the market with over $18.70 billion in transactions since its introduction in April 2017.”

Meanwhile the CBN last week increased its weekly foreign exchange intervention to $482.89 million.

On Monday the CBN injected $195 million  in the inter-bank market   comprising of $100 million for the wholesale segment and $50 million each for the Small and Medium Enterprises (SMEs) and $45 million for the invisibles segment. On Friday injected another N287.89 million.

Announcing the special intervention, Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okoroafor, said  the $287.89 million  injection, which was through the Retail Secondary Market Intervention Sales (SMIS) was in favour of the agricultural, airlines, petroleum products and raw materials and machinery sectors.

He noted  that the releases were targeted at sustaining liquidity in the market as well as boosting production and trade.

He reiterated that the apex bank remained committed to ensuring liquidity in the inter-bank sector of the market and would continue to intervene in order to drive growth in the economy and guarantee stability in the market.

He expressed optimism that the CBN’s  forex intervention had effectively checked speculations around the Naira. He, however, disclosed that the apex bank would continue to ensure enforcement through utilization report and market intelligence.