By Babajide Komolafe

The Central Bank of Nigeria (CBN) is expected to intensify its liquidity mop-up operations this week to address the build up in excess liquidity in the interbank money market which rose to N1.2 trillion last week.

Financial Vanguard investigations revealed that  the volume of  excess liquidity in the  interbank money market rose by 161 percent to N1.2 trillion last week  from N459.7 billion the previous week. The upsurge was triggered by inflow of N528.9 billion from matured treasury bills as well as inflow of  N647 billion statutory allocation distributed to the three tiers of government by the Federal Accounts  Allocation Committee (FAAC).

As a result, average interbank cost of funds fell by 353 basis points (bpts) to 3.8 percent. Data from FMDQ showed that cost of funds on Collateralised (Open Buy Back, OBB) lending fell by 353 bpts to 3.67 percent last week, from 7.2 percent the previous week. Similarly interest rate on Overnight lending fell by 400bpts to 4.0 percent from 8.1 percent the previous week.

The Central Bank of Nigeria, CBN, headquaters, Abuja

Reflecting the impact of the upsurge in market liquidity, treasury bills (TB) trading last week recorded oversubscription. On Wednesday, the  N700 billion worth of secondary market (Open Market Operations, OMO) TBs  offered by the CBN in a bid to mop-up excess liquidity, recorded 7.0 percent oversubscription, as total subscription stood at N748.7 billion.  The offer comprised of N200 billion worth of 91-Days OMO bills which attracted subscription of N63.9 billion  and N500 billion worth of 245-Days OMO bills which attracted N684.8 billion subscription.

Similarly, the   N95.2 billion worth of primary market TBs auction conducted by the CBN recorded 115 percent oversubscription. Details of the auction showed that public subscription to the

N9.5 billion worth of 91-Days bills offered stood at N10 billion while the amount sold was N9.5 billion. Public subscription to the N47.6 billion worth of 182-Days bills stood at N20.4 billion while amount sold was N17.6 billion. Public subscription to the N38.1 billion worth of 364-Days bills offered stood at N173.9 billion while the amount sold was N68.1 billion.

In addition to the huge demand for TBs, the liquidity upsurge triggered decline in banks borrowing  from the CBN  and sharp increase in  deposit placement with the apex bank.

Investigation revealed that banks borrowing through the Standing Lending Facility (SLF) fell by 18.38 percent to N233.58 billion last week, while deposit placement through the Standing Deposit Facility (SDF), rose sharply by 276.32 percent to N618.2 billion.

This week, the excess liquidity challenge will be aggravated by inflow of  N476 billion from maturing TBs, hence, the expectation that the CBN will intensify its liquidity mop-up efforts by issuing more OMO TBs.

According to analysts at Lagos based Vetiva Capital Management Limited: “Thursday’s mop up indicates the CBN’s intention to maintain its grip on system liquidity and we expect this stance to cap buying at week open”.

Also analysts at Cowry Assets Management Limited said: “This week, treasury bills worth N476.21 billion will mature via both primary and secondary market, hence we expect boost in financial system liquidity with attendant moderation in interbank rate. This however, should warrant increased OMO auctions in order to mop-up excess liquidity”.

Naira appreciates as I&E attracts $1.28bn

The naira appreciated marginally in the Investors and Exporters (I&E) window of the foreign exchange market, while market turnover rose marginally to $1.28 billion.

While  the naira remained stable at N362 per dollar in the parallel market, data from  FMDQ, showed that the indicative exchange rate for the I&E window dropped to N360.01 per dollar on Friday, from N360.20 the previous week,  translating  to 19 kobo appreciation for the naira in the window.

This was driven by 4.9 percent increase in market turnover, which rose to $1.28 billion last week from $1.22 billion the previous week.

Investigations revealed that 45 percent of the turnover for last week was recorded on Thursday, when the volume of dollars traded rose by 236 percent to $572.1 million from $170.21 million on Wednesday.

Meanwhile, the CBN sustained its weekly intervention in the foreign exchange market, as it injected $210 million through the interbank foreign exchange market. According to the apex bank, $100 million was allocated to the wholesale segment, while the SME window and invisibles each received $55 million.