January 22, 2018

CBN to slow liquidity mop-up as DMO kick-starts bond issuance with N110bn offer

CBN to slow liquidity mop-up as DMO kick-starts bond issuance with N110bn offer


Naira appreciates as external reserves inch to $40bn
Credit to private sector rises to N21.96tr

By Babajide Komolafe

THE Debt Management Office (DMO) will, this week, offer N110 billion worth of FGN bonds in commencement of  its 2018 bond issuance programme, prompting expectations of reduced liquidity mop-up operations by the Central Bank of Nigeria (CBN).

Last week, the DMO announced its bond issuance programme for the first quarter of the year (Q1 2018) which showed plans to raise between N325 billion and N375 billion in the quarter, which is lower   than the N535 billion raised in Q1’17 and the average of N380 billion issued last year. Analysts at Lagos based Afrinvest, however, projected that the N110 billion bonds will be issued at lower yield in tandem with declining yields on government securities (Treasury bills).

The Central Bank of Nigeria head office in Abuja.

“From our analysis, given the moderating yield environment and in line with current realities, we forecast a slightly lower issue yield estimated at 13.17 percent  and 13.19 percent  for JULY 2021 and MAR 2027 relative to the Dec-2017 Auction issue yield of 13.19 percent and 13.21 percent respectively”, they stated.

The  outflow of N110 billion through the bond offer, combined with lower inflow from matured treasury bills (T-Bills) this week of N64 billion, as against N263 billion the previous week, indicates that the CBN might reduce its liquidity mop-up operations this week and hence enhance stable  cost of funds in the interbank money market.

Last week, cost of funds rose sharply as the CBN mopped –up N237.06 billion through Open Market Operations (OMO) T-Bills. In addition to this, the apex bank sold N230 billion worth of primary market (fresh) T-Bills to offset impact of inflow of N263 billion from matured T-Bills during the week.

Consequently, average short term cost of funds rose by 792 basis points (bpts) during the week. Data from Financial Market Dealers Quote (FMDQ) showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 767 bpts to 16.67 percent last week from 9.0 percent the previous week, while interest rate on Overnight lending also rose by 817 bpts to 17.67 percent from 9.5 percent the previous week.

Naira appreciates as external reserve inches to $40bn

The nation’s external reserve inched to $40 billion last week buoyed by increased dollar inflow into the Investors and Exporters (I&E) window of the foreign exchange market, which prompted further naira appreciation in the window.

According to data on the CBN website, external reserves rose to $39.92 billion on Thursday January 18th, from $38.76 billion at the end of last year. Thus the external reserve gained $1.02 billion in the first three weeks of the year.

In addition to improved dollar revenue courtesy of increase in crude oil price, the sharp increase in external reserves was driven by improved dollar inflow from foreign portfolio investors through the I&E window. Vanguard analysis revealed that investors injected $3.39 billion through the window in the first three weeks of this year.

Last week, the window recorded $1.42 billion turnover, slightly down from $1.47 billion recorded the previous week. Turnover for the first week of the month  stood at $499.47 million.

Reflecting the impact of the sustained dollar inflow, the naira appreciated by 31 kobo in the I&E window last week, as the indicative exchange rate dropped to N360.1 per dollar from N360.41 per dollar the previous week. The naira, however, depreciated by N1 to N364 per dollar in the parallel market during the week.

On its part, the CBN sustained its intervention in the foreign exchange market as it injected $210 million into the interbank foreign exchange market.

Acting Director, Corporate Communications Department (CCD), CBN, Mr. Isaac Okorafor confirmed the injection saying: “The CBN offered $100million to authorized dealers in the wholesale segment of the market, while the Small and Medium Enterprises (SMEs) segment received the sum of $55 million. Customers requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others, were also allocated the sum of $55 million.”

Credit to private sector rise to N21.96tr

Meanwhile, the CBN last week released the Depository Corporation survey for November last year, which showed that credit to the private sector rose marginally by 0.13 percent to N21.96 trillion during the month.

The survey however showed that credit to the government dropped by 16.27 percent to N4.390 trillion during the month, while banks recorded 4.12 decline in current account (demand deposits) to N8.560 trillion during the month.