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Flight to safety triggers N300bn decline in credit to private sector

As credit to FG rises N284bn in January
DMO bond offer, liquidity mop-up to shape interbank

By Babajide Komolafe

CREDIT to the private sector fell by N300 billion to N21.99 trillion in January, occasioned by investors’ increased preference for safe assets with high yield as represented by government securities.

As a result, credit to the federal government rose by N284 billion to N3.88 trillion during the month.

These were highlights of the Depository Corporation Survey for January released last week by the Central Bank of Nigeria (CBN). Among other things, the survey showed a decline in Broad Money supply, currency in circulation, and Demand Deposit (money in current account) of banks.

These, according to analysts, at Lagos based investment firm, Afrinvest Plc, shows that the monetary policy environment remains tight. On the other hand, analysts at Lagos based Cowry Assets Management Limited said that the increase in credit to the government was, in part, informed by the sustained preference for safe assets by lenders due to relatively high yields.

The Central Bank of Nigeria, CBN, headquaters, Abuja

According to the survey Broad Money fell by 0.17 percent month-on-month (m-o-m) to N23.8 trillion in January 2018; while Net Domestic Asset (NDA) rose by 2.92 percent m-o-m to N8.92 trillion, accompanied by a 0.67 percent m-o-m in Net Foreign Assets (NFA) to N14.91 trillion.

The survey showed that the increase in NFA resulted from a 4.89 percent m-o-m increase in foreign exchange reserve position to $40.7 billion as well as increase in foreign portfolio inflows (FPIs).

On domestic asset creation, the decrease in NDA resulted from 1.51 percent increase in Other Liabilities (net) to N16.92 trillion accompanied by a 0.07 percent m-o-m decrease in Net Domestic Credit (NDC) to N25.85 trillion.

Further breakdown of NDC showed 1.35 percent m-o-m decrease in credit to the private sector to N21.99 trillion, that constituted 85 percent of NDC, accompanied by 7.93 percent increase in credit to the government to N3.86 trillion.

On the other hand, decline in Broad Money followed a 2.32 percent decrease in Narrow Money to N10.78 trillion (of which Demand Deposits fell by 0.67 percent to N9.2 trillion) to N13.05 trillion.

Meanwhile, Reserve Money (Base Money) moderated m-o-m by 6.43 percent to N6.06 trillion as bank reserves tanked m-o-m by 5.15 percent to N3.77 trillion while Currency in circulation fell m-o-m by 9.82 percent to N1.95 trillion

DMO bond offer, liquidity mop to shape interbank

Activities in the interbank money market this week will be largely influenced by FGN Bond offer of N70 billion by the Debt Management Office (DMO) and the pace of liquidity mop up by the CBN.

Last week, the CBN rattled the market with N533 billion liquidity mop up which pushed cost of funds higher than the the previous week. On Monday the apex bank sold N89 billion worth of secondary market (Open Market Operations, OMO) treasury bills. This was followed by sale of N444 billion worth of OMO TBs on Thursday.

In addition to these, the apex bank held primary market TB auction on Wednesday during which it sold N95.72 billion worth of bills. This resulted to liquidity outflow of N628.72 billion from the market, which cancelled out the moderating effect of N453 billion inflow from matured TBs.

Consequently, interest rate on collaterised lending (Open Buy Back, OBB) rose by 130 basis points (bpts) to 9.8 percent at close of last week from 8.5 percent the previous week. Similarly, interest rate on Overnight lending rose by 83 bpts to 10 percent from 9.17 percent the previous week.

This trend is likely to persist this week. While liquidity inflow of N234.32 billion is expected from matured TBs, the market will experience outflow of N53.96 billion from TB auction, as well as FGN Bond offer of N70 billion by the DMO. These outflow combined with further liquidity mop up by the CBN are expected to further push up cost of funds in the market this week.

Naira depreciates as turnover in I&E rises 130%

The naira depreciated in the parallel market and in the Investors and Exporters (I&E) window last week, even as the volume of dollars traded in the window rose by 130 percent.

The naira depreciated by N1 in the parallel market as the parallel market exchange rate rose to N363 per dollar last week from N362 per dollar the previous week.

In the I&E window, the naira depreciated for the second consecutive week by 25 kobo. According to data from the Financial Market Dealers Quote (FMDQ), the indicative exchange rate for the window rose to N360.57 per dollar last week from N360.32 per dollar the previous week.

This was in defiance of 130 percent upsurge in the volume of dollars traded (turnover) in the market. Financial Vanguard analysis showed that market turnover rose to $1.52 billion last week from $659 million the previous week. Consequently, the volume of dollars traded in the window year-to-date rose to $12.78 billion from $11.26 billion the previous week.

Meanwhile, the CBN sustained its weekly intervention in the foreign exchange market by injecting $210 million into the interbank foreign exchange market, comprising $100 million allocated to the wholesale segment, $55 million to the SME window and $55 million to invisibles.


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