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Cost of funds to fall as N632bn inflow halts scarcity of funds

By Babajide Komolafe

THE scarcity of funds that caused cost of funds to rise by over 1000 basis points in the interbank money market last is expected to abate this week due to inflow of N632 billion from matured treasury bills and statutory allocation to states and local governments.

Naira, CBN, PDP, FAAC
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The interbank money market experienced sharp decline in liquidity last week, aggravated by outflow of N161 billion for foreign exchange purchases and FGN Bond auction held by the Debt Management Office (DMO).

This outflow cancelled out the impact of N120 billion inflow comprising N90 billion from matured treasury bills (TBs) and N30 billion from coupon payment on the 30-year FGN bond.

As a result, the market ended with negative liquidity of N90 billion, which caused average short term cost of funds to rise week-on-week by 1,025 basis points (bpts).

Data from FMDQ showed that interest rate of Collateralised (Open Buy Back, OBB) lending rose by 993 bpts to 21.86 percent last week from 11.93 percent the previous week.

Similarly, interest rate on Overnight lending rose by 1,057 percent to 23.21 percent last week from 12.64 percent the previous week.

Analysts were, however, hopeful that this trend will be reversed this week as the inflow of N6232.9 billion, comprising N311.9 billion from maturing TBs and N321 billion from statutory allocation, is expected to cancel out the effect of N223.23 billion outflow for TB purchase, and hence decline in cost of funds.

Making this projection, analysts at Cowry Assets Management Limited, said: “In the new week, CBN will auction T-bills worth N223.23 billion, viz: 91-day bills worth N28.02 billion, 182-day bills worth N58.68 billion and 364-day bills worth N136.52 billion. We expect their stop rates to decrease marginally due to  increase demand amid boost in system liquidity which, in addition to maturing T-Bills worth N88.68 billion and the  effect of Federation Accounts Allocation Committee (FAAC) inflows of N762.5 billion, are also expected to result in decline in Nigeria Interbank Offered Rate (NIBOR)”.

*CBN injects $494.2m as naira depreciates further in I&E

The Central Bank of Nigeria (CBN) last week increased its weekly foreign exchange intervention to $494.2 million even as the naira depreciated for the second consecutive week in the Investors and Exporters (I&E) window.

On Tuesday the apex bank injected $210 million into the interbank foreign exchange market, allocating $100 million to the wholesale segment, $55 million to the Small and Medium Enterprises (SME) window and $55 million to meet demand for invisibles.

On Friday, the CBN injected another $284.2 million via the  retail Secondary Market Intervention Sales (SMIS) and Chinese Yuan of 36 million in the spot and short-tenured forwards segment of the inter-bank foreign market.

Announcing the additional injection on Friday, Director, Corporate Communications Department, CBN, Isaac Okorafor said that the United States dollars-denominated transactions were to meet requests in the agricultural and raw materials sectors, while those in Chinese Yuan were for Renminbi-denominated Letters of Credit.

Okorafor further noted that the apex bank was satisfied with the continued stability in the foreign exchange market and assured that the CBN would remain committed to ensuring that all the sectors of the forex market continue to enjoy access to the needed foreign exchange.

Meanwhile, the naira depreciated for the second consecutive week in the I&E window, indicating increased demand for dollars in the window.

Data from FMDQ showed that the indicative exchange rate for the window rose to N361.97 per dollar at the close of business on Friday, from N361.46 per dollar the previous week, indicating 51 kobo depreciation for the naira.

Cumulatively, the naira has depreciated by N108 since July 12 when it appreciated last to N360.79 per dollar. If this trend persists, the naira will depreciate below    the N362 per dollar mark by the end of this week.

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