•Retains Monetary targeting for 2018/2019
•N998bn inflow to aggravate excess liquidity in interbank

Babajide Komolafe

THE Central Bank of Nigeria (CBN) last week released its Monetary, Credit, Foreign Trade and Exchange Guidelines for the 2018 and 2019 fiscal years, raising its money supply growth forecast  for 2018 to 10.98 percent. The CBN had earlier projected a money supply growth of 10.29 percent for 2018.

“The Committee noted that money supply (M2) grew marginally by 0.07 per cent in February 2018 (annualised to 0.42%), in contrast to the provisional growth benchmark of 10.29 per cent for 2018″, stated the CBN Governor, Mr. Godwin Emefiele, in the communiqué issued at the end of the  Monetary Policy Committee (MPC) meeting held on April 4.

Emefiele CBN Governor

The apex bank also said it would retain monetary targeting framework, as its strategy for the 2018/2019 fiscal year, complemented with appropriate exchange rate regime. The CBN added that it would adopt a proactive monetary policy stance while Open Market Operations (OMO) will remain the major liquidity management tool during the two years.

The apex bank stated: “The primary objective of monetary policy in 2018/2019 fiscal years remains the maintenance of price stability. Integral to this is the sustenance of financial system stability. In this regard, the CBN will sustain its effort towards reducing inflationary pressures through effective liquidity management. The aim is to create an environment characterized by low inflation and interest rates, conducive for inclusive and sustainable growth.

The Bank shall continue to take necessary steps to ensure banking system soundness and overall financial system stability as well as enhance the efficiency of the payments system to create a favourable platform for the conduct of monetary policy.

The CBN remains resolute in achieving credible financial markets through effective enforcement of financial market rules and regulations. The Monetary targeting framework will remain the monetary policy strategy in 2018/2019 fiscal years. This will be complemented by an appropriate exchange rate regime. In this regard, growth in broad money (M2) will be closely monitored, with projections of 10.98 and 10.29 per cent in 2018 and 2019, respectively.

“OMO shall remain the major liquidity management tool of the CBN. Through the OMO auctions, the Bank shall either sell or purchase CBN Bills, in order to maintain banking system liquidity at levels that are consistent with its monetary policy stance.

All commercial and merchant banks as well as non-interest institutions, i.e. authorised Money Market Dealers (MMDs) are eligible participants at the auctions. OMO shall be complemented by discount window operations, including repurchase agreements (repo) and reverse repurchase agreements (reverse repo).”

N998bn inflow to aggravate excess liquidity in interbank

The challenge of excess liquidity confronting the interbank money market will this week be aggravated by the inflow of N998 billion.

Last week, the market was awashed with liquidity which caused cost of funds to trend downward, with average short term cost of funds falling by 25 basis points (bpts). According to data from FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending fell marginally by 17 bpts to 2.83 percent last week from 3.0 percent the previous week.

Similarly, interest rate on Overnight lending fell marginally by 33 bpts to 3.42 percent from 3.75 percent the previous week.

The excess liquidity was encouraged by CBN’s slow down of liquidity mop up operations. The apex bank conducted sale of OMO TBs only on Friday to mop up inflow of N227 billion from matured OMO bills. This was in contrast to the previous week, when the apex bank  mopped up N886.7 billion via OMO TBs.

Thus, with inflow of N998.63 billion expected this week, from maturing TBs worth N371.83 billion and statutory allocation funds of N626.8 billion, excess liquidity will persist in the market resulting to further decline in cost of funds. Cost of funds might however trend upward should the CBN resumed aggressive liquidity mop up.

Naira stable as I&E turnover fall by 20%

The naira was relatively stable last week compared to the previous week in spite of 20 percent decline in the volume of dollars traded in the Investors and Exporters (I&E) window last week.

Financial Vanguard analysis of transactions in the I&E window showed that the volume of dollars traded fell to $1.04 billion from $1.3 billion the previous week. This increased the year-to-date turnover to $19.88 billion.

The indicative exchange rate closed the week at N360.41 per dollar, down from N360.42 per dollar the previous week, hence 1 kobo appreciation for the naira. The naira however remained stable at N363 per dollar in the parallel market.

On its part, the CBN sustained its weekly intervention by selling $210 million in the interbank foreign exchange market.

Confirming the figures, Acting Director, Corporate Communications Department at the CBN, Mr. Isaac Okorafor, said that the Wholesale sector of the market got another injection of $100 million, just as the Small and Medium Enterprises (SMEs) and invisibles sectors each received $55 million.


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