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Cost of funds to decline further as N123bn, FAAC hit interbank market

•Analysts project higher inflation rate for May

By Babajide Komolafe

THE downward trend of cost of funds  in the interbank money market is expected to persist this week following anticipated inflow of N123 billion from maturing treasury bills and statutory allocation funds disbursement by the Federation Accounts Allocation Committee, FAAC.

Last week, cost of funds fell for the second consecutive week in the interbank money market in spite of outflow of N129.64 billion occasioned by primary market (fresh) treasury bills auction conducted by the Central Bank of Nigeria, CBN, as well as outflow of N15 billion occasioned by the Green Bonds auction conducted by the Debt Management Office, DMO.

Details of the treasury bills, TBs, auction showed that the CBN offered N15 billion worth of 91-day bills, N30 billion worth of 182-day bills, and N84.6 billion worth of 364-day bills.

On the other hand the apex bank sold N15.2 billion worth of 91-day bills, N39 billion worth of 182-day bills, and N210.8 billion worth of 364-day bills at marginal rates of 10 percent, 11.95 percent and 12.3 percent respectively, similar to rates in the previous auction except for the slight increase of 14 basis points on the 364-day bills.

Similarly, the N15 billion worth of Green Bonds offered by the DMO recorded 220 percent subscription as  total subscriptions stood at N32.93 billion. In spite of the oversubscription, the agency allotted N15 billion that was offered for a tenor of seven years, at a coupon of 14.50 percent per annum.

Announcing the outcome of the offer, the DMO said: “Total value of subscriptions received was N32.93 billion, representing 220 percent of the N15 billion offered.

“Similarly, the number of subscribers doubled when compared to the figure for the first Sovereign Green Bond issued in December 2017. Retail investors were not left out, as the number of individuals who subscribed for the second Sovereign Green Bond more than doubled.

“The amount of subscriptions grew by almost 201 percent with the share of total subscriptions rising to 1.43 percent compared to 0.67 percent for the 2017 Sovereign Green Bond. The results of the second Sovereign Green Bond issuance revealed increased knowledge and awareness of Green Bonds by subscribers, and a greater level of commitment from the general public towards protecting the environment.

“The proceeds of the Green Bond would be used to finance projects in the 2018 Appropriation Act, which would contribute to Nigeria’s commitments to the Paris Agreement on Climate Change. The projects would include Off-Grid Solar and Wind Farm, Irrigation, Afforestation and Reforestation, as well as, Ecological Restoration.”

The impact of the outflows was, however, moderated by inflow of N255.4 billion on Thursday, prompting cost of funds to close the week lower than the previous week’s level.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 557 basis points (bpts) to 5.29 percent last week from 10.86 percent the previous week. Similarly, interest rate on Overnight lending dropped by 571 bpts to 5.71 percent last week from 11.43 percent the previous week.

Analysts at Lagos based Cowry Asset Management Company projected further moderation in cost of funds this week saying: “In the new week, CBN will retire T-bills worth N123.20 billion via primary and secondary markets, hence, we expect yields to further moderate amid expected boost in financial system liquidity which would also derive from anticipated FAAC injections.”

Naira appreciates as I&E turnover rises by  3.3 per cent

On the foreign exchange scene, the naira appreciated by 24 kobo in the Investors and Exporters (I&E) window prompted by 3.3 percent increase in volume of dollars (turnover) traded in the window.

Data from FMDQ showed that the window recorded turnover of $752.4 million last week, up from $728.4 million recorded the previous week. As a result the indicative exchange rate for the window dropped to N360.51 per dollar last week from N360.75 per dollar the previous week, translating to 24 kobo appreciation for the naira.

On the official side, the CBN sustained its weekly injection of $210 million into the interbank foreign exchange market.

Confirming the injection, the Director, Corporate Communications Department, Mr. Isaac Okorafor said that authorized dealers in the wholesale segment of the market were offered $100million, while the Small and Medium Enterprises, SMEs, segment received  $55 million. The sum of $55 million was allocated to customers requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance, BTA, among others.

Okorafor reaffirmed the apex bank’s commitment towards ensuring stability in foreign exchange market.

Analysts project higher inflation rate for May

Analysts have projected higher inflation rate for May even as the National Bureau of Statistics, NBS, is set to release the inflation data for the month this week.

Recall that the three-month downward trend of the inflation rate, from 11.44 percent in December 2018 to 11.25 percent in March 2019, was reversed in April when the rate rose to 11.37 percent.

However, Managing Director/ Chief Executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane said the upward trend persisted in May, projecting 11.38 percent inflation rate for the month, citing seasonal factors, debt securitisation and high diesel price

On their part, analysts at FSDH Merchant Bank projected 11.39 percent inflation rate for May citing increase in food and increase in prices of imported food items.

They said: “The major driver of the expected increase in the inflation rate is the increase in food prices, due to the seasonality effect typically associated with the onset of the planting season. Security challenges in some food producing regions in Nigeria reduce the supply of food items, leading to an increase in prices. The current inflation rate is higher than the 6% – 9% target set by the Central Bank of Nigeria (CBN). Given current realities, the inflation rate will remain above the CBN’s target in the short-to-medium-term. This may reduce the real yield on fixed income securities.”


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