External reserves record lowest weekly decline in 4months

By Babajide Komolafe

THE Central Bank of Nigeria (CBN) is expected to intensify efforts to mop up liquidity from the banking system this week in response to inflow of N552 billion from matured treasury bills (TBs). Last week, the apex bank issued secondary market (Open Market Operations, OMO) TBs to mop up N316.23 billion from the interbank money market following the inflow of N375.98  billion from matured TBs.

Consequently, the impact of the inflow on cost of funds was muted as average short term interest rate rose marginally by 17 basis points (bpts). According to FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending increased marginally by 17 basis bpts to 4.25 percent on Friday, from 4.08 percent the previous week, while interest rate on Overnight lending increased by the same margin to  5.0 percent last week from 4.83 percent the previous week.

This week, the market will experience outflow of N128.24 billion for purchase of primary market TBs to be issued by the CBN. The primary market TBs to be auction comprise: 91-day bills worth N3.38 billion, 182-day bills worth N16.92 billion and 364-day bills worth N107.94 billion. On the other hand the market will experience inflow of N552.07 billion from matured TBs, translating to excess liquidity of N423.83 billion.

The Central Bank of Nigeria head office in Abuja.

According to analysts at Lagos based Cowry Assets Management Limited, the huge net inflow should lead to moderation in cost of funds. However, the CBN, in its bid to curb the build up in inflation rate, which rose from 11.14 percent in July to 11.28 percent in September, is expected to issue OMO TBs to mop up the excess liquidity.

Meanwhile, analysts at FSDH Merchant Bank has projected that the interbank money market will record net inflow of N1.79 trillion this month, adding that to mop up this excess liquidity, the CBN will increase yields on TBs with a view to enhance patronage from the investing public.

In the bank’s monthly economic and financial market outlook for November, they stated: “We expect a total inflow of about N2.82 trillion to hit the money market from the various maturing government securities and Federal Account Allocation Committee (FAAC) in November 2018.

“We estimate a total outflow of approximately N1.03 trillion from the various sources, including government securities and statutory withdrawal, leading to a net inflow of about N1.79 trillion. While we note that yields may inch up from the current levels, we do not see a significant movement in yields.

“FSDH Research also notes the possibilities of an increased liquidity in the financial system as a result of the implementation of the new minimum wage and electioneering spending. The Central Bank of Nigeria (CBN) may adopt the following strategies to manage liquidity: increase the yields on Nigerian Treasury Bills (NTBs), and/or increase the Cash Reserve Requirement (CRR) if there is elevated liquidity in the system.”

 External reserves record lowest weekly decline in four months 

The weekly depletion of the nation’s external reserves slowed down last week to the lowest in four months. Data by the CBN showed that the external reserve fell to $41.756 billion last week Thursday from $41.946 billion previous week Thursday, translating to week-on-week (w/w) decline of $190 million.

The $190 million w/w decline, however, represents the lowest in four months, specifically since July 5 when the reserves peaked at $47.798 billion.

This represents 52 percent decline when compared with the w/w decline of $397 million recorded the previous week. It also represents 50 percent and 67 percent decline when compared with average weekly decline of $383.25 million and   $577.5 million in September and October respectively.

Naira appreciates as I&E records lowest monthly inflow

Meanwhile, the naira last week appreciated marginally by 14 kobo in the Investors and Exporters (I&E) window while remaining stable in the parallel market.

Data from FMDQ showed that the indicative exchange rate for the I&E window dropped to N363.6 per dollar last week from N363.74 per dollar the previous week, translating to 14 kobo appreciation. However, the window recorded its lowest monthly capital importation in October, indicating sustained investors’ apathy to Nigeria.

Commenting on this, analysts at FSDH Merchant Bank stated: “The data obtained as at Tuesday, 02 November 2018 from the FMDQ OTC Securities Exchange on the total capital importation through the Investors’ and Exporters’ Foreign Exchange Window (I&E Window) in October 2018 stands at $2.08 billion. The amount recorded in October is the lowest figure recorded since January 2018. This is an indication of foreign investors’ apathy for investments in Nigeria at the moment. The CBN remained the largest contributors to the inflow in October, the same trend observed in September. Some investors are adopting a careful approach to investing in Nigeria on account of political considerations.”