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Cost of funds to fall as N1.1tr boost interbank market

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Naira hit year low in I&E, depreciates to N365.3/$
Banks’ current account deposit rise by 4.94% in Oct
•Analysts project 2.1% GDP growth for Q3’18

By Babajide Komolafe

COST of funds is expected to fall this week in the interbank money market in response to inflow of N1.05 trillion from maturing treasury bills (TBs).

Last week, cost of funds rose sharply above 20 percent following aggressive liquidity mop up by the Central Bank of Nigeria (CBN) in response to liquidity inflow of N1.47 trillion.

CBN Headquarters

The liquidity inflow comprised statutory allocation funds of N788.14 billion and N684.84 billion from matured TBs.

To mop up the huge liquidity injection, the CBN conducted Open Market Operations (OMO) from Monday to Thursday where it offered N1.6 trillion OMO TBs. The offers were however undersubscribed with total public subscription at N935.3 billion while the CBN sold N932.7 billion.

As a result short term interest rate rose sharply by over 800 basis points (bpts). Data from the FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 776 btpts to 24.33 percent on Friday from 16.57 percent the previous week. Similarly, interest rate on Overnight lending rose by 872 bpts to 26.08 percent last week Friday from 17.36 percent the previous week.

Analysts at Lagos based Cowry Assets Management Limited and Afrinvest Limited projected that the expected inflow of N1.05 trillion billion will lead to downward moderation in cost of funds this week.

“In the coming week, OMO of N498.7 billion      and T-bills of N551.4 billion maturities are expected to hit the system and as a result, we believe the CBN will sustain the bout of mop ups. Nevertheless, we expect subscription rates to continue to lag as investors take advantage of more attractive rates at the secondary market. We also anticipate that money market rates will remain within a single digit band”, said Afrinvest analysts.

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Naira hit year low in I&E, depreciates to N365.3/$

Meanwhile the naira depreciated to its lowest level this year in the Investors and Exporters (I&E) window due to increased foreign exchange demand by foreign investors.

Data from FMDQ showed that the indicative exchange rate for the window rose to N365.33 per dollar on Friday, the highest level this year, from N364.1 per dollar the previous week.

Furthermore, the volume of dollars traded in the window (turnover) dropped by 15 percent to $1.3 billion last week from $1.4 billion the previous week.

Meanwhile the I&E window recorded inflow of $1.98 billion in November, the lowest since August 2017. This according to analysts at FSDH Merchant Bank indicates foreign investors’ careful approach to investing in Nigeria.

However, the naira appreciated by N6 in the parallel market where the exchange rate dropped to N363 per dollar on Friday from N369 per dollar the previous week, reflecting the impact of  the $15,000 additional weekly sale to each bureaux de change (BDC) by the CBN, which commenced last week.

Banks’ current account deposits rise by 4.94% in Oct

In another development, the CBN revealed that banks current account deposits (demand deposits) rose by 4.94 percent to N9.2 trillion in November.

The apex bank disclosed this in its Depository Corporation survey released last week.

The report showed that Broad Money rose by      1.73 percent m-o-m to N25.71 trillion in October 2018. This resulted from a 6.10 percent m-o-m increase in Net Domestic Assets (NDA) to N16.38 trillion which offset a 0.43 percent m-o-m decrease in Net Foreign Assets (NFA) to N18.74 trillion.

On domestic asset creation, the increase in NDA resulted from an increase of 2.55 percent in Net Domestic Credit (NDC) to N26.63 trillion which was accompanied by 2.67 percent m-o-m fall in Other Liabilities (net) to N10.25 trillion.

Further breakdown of the NDC showed a 14.60 percent m-o-m rise in credit to the government to N3.90 trillion as well as an increase of 0.70 percent in credit to the private sector to N22.72 trillion.

On the liabilities side, 1.73 percent m-o-m rise in Broad Money supply was driven by 4.20 percent m-o-m growth in Narrow Money to N11.13 trillion as Demand Deposits which rose by 4.94 percent    to N9.52 trillion was accompanied by a 0.01 percent rise in currency outside banks to N1.61 trillion.

However, Quasi Money (near maturing short term financial instruments) fell by 0.08 percent m-o-m to N14.58 trillion.

Reserve Money (Base Money) increased m-o-m by 7.74 percent    to N7.33 trillion as bank reserves and Currency in circulation rose m-o-m by 10.97 percent    and 1.54 percent    to N5.02 trillion and N1.96 trillion respectively.

Analysts project 2.1% GDP growth for Q3’18

Analysts at Afrinvest has projected Gross Domestic Product (GDP) growth rate of 2.1 percent for the third quarter of the year (Q3’18). Their projection is coming ahead of the release of the GDP figures for Q3’18 by the National Bureau of Statistics (NBS) this week.

They said: “We estimate real GDP growth for Q3:2018 at 2.1 percent    Y-o-Y, an improvement over the growth rates of 2.0 percent and 1.5 percent    recorded in Q1 and Q2:2018 respectively. We attribute the expected faster expansion in real GDP to improvement in the oil sector as well as steady growth in the non-oil sector.

“After a contraction in Q2:2018 in the oil sector, we predict a return to growth due to a recovery in oil production and higher oil prices. According to the Ministry of Petroleum Resources, oil production increased to an average of 2.1mb/d in Q3:2018, 6.1 percent growth over 1.98mb/d in the corresponding quarter of 2017 and 14.1 percent higher than in the previous quarter. Oil price was also 45.9 percent stronger at an average of $75.50b/d in Q3:2018 compared with the same period of 2017.

“In the non-oil sector, we expect a more broad-based expansion. This will be driven by a slight recovery in agriculture growth which had slumped to the lowest quarterly growth on record in Q2:2018.”


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