I&E attracts $2.1bn in May
By Babajide Komolafe
THE interbank money market is expected to record net inflow of N607 billion this month as well as frequent liquidity mop ups by the Central Bank of Nigeria, CBN, through treasury bills.
According to projections by analysts at FSDH Merchant bank, the market will record inflow of about N1.36 trillion in June from the various maturing government securities and statutory allocation funds from the Federation Accounts Allocation Committee, FAAC.
On the other hand the market will experience outflow of about N753 billion from various sources, leading to a net inflow of about N607 billion.
“The market is expected to be liquid in the month of June 2019, this may necessitate the issuance of OMO to mop-up the liquidity in the system”, they said.
This projection was confirmed by development in the market last week, with excess liquidity rising by 46 percent to N743 billion at the close of the week from N510 billion at the beginning of the week. The increased liquidity which was buoyed by inflow of N177.05 billion from matured treasury bills (TBs), was in spite of outflow of N476 billion through secondary market (Open Market Operations, OMO) bills issued by the CBN to mop up excess liquidity in the market.
Responding to the increased level of liquidity, cost of funds moderated downwards with average short term interest rate falling by 43 basis points (bpts).
Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 28 bpts to 10.86 percent last week from 11.14 percent the previous week. Similarly, interest rate on Overnight lending fell by 57 bpts to 11.43 percent last week from 12 percent the previous week.
However, in spite of inflow of N177 billion from maturing TBs this week, cost of funds is expected to rise as the apex bank is expected to sell primary market TBs as well as issue OMO bills to mop up excess liquidity in the market.
“In the new week, treasury bills worth N176.56 billion will mature via OMO; however, we expect interbank rates to rise further amid anticipated strain in financial system liquidity in the absence of FAAC,” said analysts at Lagos based Cowry Assets Management Limited.
I&E attracts $2.1bn in May
The Investors and Exporters, I&E, window attracted $2.1 billion in May. This represents foreign capital importation through the window during the month. This, however, represents 15 percent decline when compared to the $2.46 billion recorded in April. The $2.1 billion recorded in May is also the lowest foreign capital imported through the window since October 2018.
Meanwhile the volume of dollars traded (turnover) in the window rose by 47 percent last week to $728.4 million from $496.5 million the previous week.
The naira, however, remained relatively stable in the window as the indicative exchange rate stood at N360.75 per dollar last week, as against N360.74 per dollar the previous week.
But the naira appreciated in the parallel market by 40 kobo last week as the market exchange rate dropped to N359.3 per dollar from N359.7 per dollar the previous week.
Meanwhile analysts have lamented the continued dominance of foreign portfolio investment in the amount of foreign capital imported into the country, saying this reduces the effectiveness of exchange rate management.
According to analysts at FSDH Merchant Bank, “Available data from the CBN shows that Foreign Direct Investments accounted for only 11 percent of the total capital importation into the country between 2010 – 2018.
Foreign Portfolio Investments (FPIs) accounted for 70 percent of the total capital importation during the period while other investments accounts for 19 percent. The high FPIs reduce the effectiveness of any exchange rate management regime.
This is because of the distortions that are usually associated with the Foreign Portfolio Investments particularly in a small developing country like Nigeria.”