By Babajide Komolafe
THE aggressive liquidity mop up operations conducted by the Central Bank of Nigeria (CBN) last week is expected to persist this week as inflow of N330 billion boost interbank money market liquidity.
In a bid to tackle excess liquidity in the interbank money market, worsened last week by inflow of N290 billion, the apex bank mopped up N454 billion from the market by selling secondary market (Open Market Operations, OMO) treasury bills. Financial Vanguard analysis reveal that the N50 billion worth of 119-Day OMO bills offered by the CBN was largely undersubscribed as subscription and amount sold stood at N2.9 billion with stop rate of 11.05 percent. But the N200 billion worth of 231-Day OMO bills offered by the CBN was hugely oversubscribed as the subscription and amount sold stood at N451.2 billion while the stop rate was 12.15 percent.
The liquidity mop, however, triggered a 6,600 basis points (bpts) increase in short term cost of funds. According to the FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending shot up by 6,217 bpts to 65 percent on Friday from 2.83 percent the previous week. Similarly, interest rate on Overnight lending rose by 7,009 bpts to 73.42 percent on Friday from 3.33 percent the previous week.
This week, the market will receive inflow of N330 billion from matured TBs, which would more than offset the impact of outflow of N33.84 billion through primary market TBs auction to be conducted by the CBN this week. To address the resulting excess liquidity, the CBN may conduct liquidity mop up via OMO TB issue. Hence the direction of cost of funds this week hangs in the level of OMO TB issue by the CBN.
Alluding to this, analysts at Lagos based Cowry Asset Management Limited said: “We anticipate ease in financial system liquidity with resultant moderation in interbank rates if CBN does not aggressively mop up via OMO sales.”
Naira records mixed fortune
The naira recorded mixed performance across the foreign exchange market last week even as volume of dollars traded in the Investors and Exporters (I&E) window rose by 15 percent. According to naijabdcs.com, the live exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON), the naira appreciated by N1 in the parallel market, as the exchange rate dropped to N361 per dollar last Friday from N362 per dollar the previous week.
The naira, however, depreciated by 30 kobo in the I&E window, as the indicative exchange rate of the window rose to N361.05 per dollar on Friday from N360.75 per dollar the previous week. This was in spite 15 percent increase in the volume of dollars traded in the window which rose to $1.17 billion last week from $1.02 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.
Analysts’ forecast April inflation at 12.57%
Ahead of the release of inflation data for April this week by the Nigeria Bureau of Statistics (NBS), analysts’ projections indicate inflation rate fell for the 15th consecutive months to 12.57 percent in April. While analysts at Financial Derivatives Company (FDC) projected 12.70 percent inflation rate for April, analysts at FSDH Merchant Bank and Afrinvest Limited respectively projected 12.43 percent and 12.60 percent inflation rate for the month.
According to Afrinvest analysts: “The NBS is expected to release Consumer Price Index (CPI) data for April in the coming week ahead of the MPC meeting coming up between May 21 and 22. We expect Headline Inflation (Y-o-Y) to print at 12.6 percent, marking the 15th consecutive decline in Inflation since it peaked at 18.7 percent in January 2017. The moderation will be majorly base-effect driven, as we expect the impact of seasonality to lead to a subtle increase in M-o-M price growth.”
On their part, FSDH analysts stated: “FSDH Research expects the inflation rate (year-on-year) to drop to 12.43 percent in April 2018 from 13.34 percent recorded in the month of March. The prices of certain seasonal food items we monitored appreciated in April 2018, leading to 0.86 percent increase in our Food and Non-Alcoholic Index. This Index increased year-on-year by 14.71 percent, up from 234.39 points recorded in April 2017. We also observed an increase in the prices of Transport and Housing, Water, Electricity, Gas and Other Fuels divisions between March and April.
“Despite the increase recorded in the prices of some food and non-food items, the base effect of the Composite Consumer Price Index (CCPI) in April 2017 will depress the inflation rate.” In the company’s Economic Bulletin issued on May 4, analysts at FDC stated: “In April, headline inflation is projected to dip again to 12.7 percent. It is likely to be the 15th consecutive monthly decline and the lowest point since March 2016. The drop is mainly attributable to the waning base year effects. Ironically, month-on-month (MoM) inflation is expected to maintain its upward trend, increasing by 19bps to 1.03 percent (13.09 percent annualized) from 0.84 percent (10.50 percent annualized) in March.
“We also anticipate both food and core inflation (less seasonality) to move in tandem with headline inflation. This is because of the stability of the Naira, but could be undermined by the commencement of the planting season, with price increases associated with the period.”