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Cost of funds fluctuation to persist as N600bn hit interbank

Credit to private sector drops to N21.93tr on OctoberCredit to private sector drops to N21.93tr on October

By Babajide Komolafe

THE fluctuation of cost of funds in the interbank money market will persist this week even as the market enjoys inflow of N600 billion from matured treasury bills (TBs) and statutory allocation funds.

Last week the market experienced fluctuation in cost of funds triggered by liquidity mop-up operation of the Central Bank of Nigeria (CBN), funding for dollar purchases and inflow from matured TBs.

Financial Vanguard analysis revealed that the market enjoyed inflow of N249.12 billion from matured TBs which caused short term cost of funds to drop to 11 percent from over 30 percent the previous week. In a bid to mop-up the inflow, the CBN issued N427 billion worth of TBs which was undersubscribed by 51 percent. Total subscription stood at N209.5 billion while the amount sold stood at N189.5 billion.

CBN & Exchange rate: Naira & Dollar

In the secondary market, where existing TBs are re-issued, the CBN offered N310 billion worth of  Open Market Operations (OMO) bills, while total subscription  and amount sold  stood at N95.7 billion and N72.3 billion respectively.

In the primary market where fresh TBs are issued, the apex bank offered N117 billion worth of bills while total subscription and amount sold stood at N113.8 billion and N117.2 billion respectively.

These outflows, combined with outflow to fund dollar purchase in the retail intervention auction conducted by the CBN, jerked up short term funds to over 25 percent at the close of the week.

However when compared to the level in the previous week, average short term cost of funds closed lower by 424 basis points (bpts). Data from Financial Market Dealers Quote (FMDQ) showed that interest rate on Collateralised (Open Buy Back, OBB) lending dropped by 498 bpts to 25.85 percent on Friday from 30.83 percent the previous week. Similarly, interest rate on Overnight lending dropped by 350 bpts to 29.08 percent from 32.58 percent during the same period.

This week the market will enjoy inflow of N109.35 billion from matured TBs, and over N500 billion from statutory allocation funds. These inflows are expected to boost market liquidity and lead to decline in cost of funds. The decline in cost of funds might however be short-lived, as the CBN will likely step in with special TB offer aimed at mopping-up the liquidity.

 Credit to private sector drops toN21.9tr in October

In apparent reflection of the crowding out effect of government borrowing activities, and the attractiveness of yields on government securities, credit to the private sector dropped marginally by 0.42 percent to N21.93 trillion in October. Credit to the government however rose by 5.69 percent to N5.25 trillion during the month.

These were highlights of the Deposit Money corporation survey of the CBN released last week.

The survey showed a 2.49 percent month-on-month (MoM) increase in Broad Money to N22.50 trillion in October – as Net Foreign Assets (NFA) increased MoM by 23.35 percent to N12.40 trillion, thus offsetting a MoM 15.12 percent fall in Net Domestic Assets (NDA) to N10.10 trillion.

The increase in NFA resulted from increase in foreign exchange reserves position as well as increase in foreign portfolio inflows (FPIs). On domestic asset creation, the increase in NDA resulted from a 0.70 percent MoM rise in Net Domestic Credit (NDC) to N27.17 trillion, accompanied by a 13.19 percent increase in Other Liabilities (net) to N17.07 trillion. A breakdown of NDC showed a 5.69 percent MoM increase in Credit to the Government to N5.25 trillion accompanied by a 0.42 percent decline in Credit to the Private sector to N21.93 trillion as the public sector continued to crowd-out the private sector.

Increase in Broad Money also followed a 1.83 percent MoM increase in Quasi Money (near maturing short term financial instruments) to N12.11 trillion, accompanied by a 3.27  percent  rise in Narrow Money to N10.39 trillion of which Demand Deposits increased by 3.48 percent to N8.93trillion. Indicative of tightened monetary policy conditions, Reserve Money (Base Money) also increased MoM by 3.65 percent to N5.76 trillion as bank reserves increased MoM by 5.62 percent to N3.62 trillion while currency in circulation rose MoM by 0.57 percent to N1.79 trillion.

Naira depreciate as investors inject $749m in I&E

The naira depreciated by 65 kobo in the Investors and Exporters (I&E) window last week, in spite 2.9 percent increase in dollars traded in the window.

Data from FMDQ revealed that the indicative exchange rate of the window rose to N360.65 per dollar last week from N360.25 percent the previous week. The naira however remained stable in the parallel market.

In apparent reflection of increased confidence in the I&E window, investors injected $749.17 million in the four days of trading, as against $727.9 million recorded in the previous week. On its part the CBN sustained its intervention in the foreign exchange market by injecting $210 million into the interbank foreign exchange market.

In a statement announcing the intervention, Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor said:  “$100 million was offered to the wholesale segment, while the Small and Medium Enterprises (SMEs) segment got an allocation of $55 million. The invisibles segment (i.e. tuition fees, medical payments and Basic Travel Allowance (BTA), among others) was also allocated $55 million.”


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