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Investors anticipate higher rates as CBN sells N169.85bn TBs

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•Naira to appreciate further as reserves drop below $44bn

By Babajide Komolafe

INVESTORS are anticipating higher interest rate on the N169.85 billion worth of treasury bills (TBs) to be auctioned this week by the Central Bank of Nigeria (CBN).

CBN, Consumer production, Central Bank of Nigeria
CBN Gov Godwin Emefiele

This follows the massive under subscription suffered by the FGN Bond auction of N145 billion conducted by the Debt Management Office (DMO).

The bond auction recorded 34.4 percent under subscription, with the DMO selling N59.53 billion comprising

N14.05 billion worth of five-year bonds, N17.68 billion worth of 10-year bonds, and N27.80 billion worth of 30-year bonds. However, the bonds were auctioned at higher stop rates of 14.29 percent, 14.39 percent, and 14.59 percent respectively from 13.35 percent, 13.64 percent and 14.12 percent in the July bond auction.

Analysts attributed the under-subscription and higher rates to weak demand from foreign portfolio investors (FPIs), due to increased risk perception of the country.

“The higher rates at the auction reflect investor’s perception of the country’s riskiness especially in the face of an impending global economic recession”, said analysts at Lagos based, Afrinvest Securities Limited.

The above according to analysts at Cowry Assets Management Limited will come to play in the TB auction to be conducted by the CBN this week.

“In the new week, CBN will auction T-bills worth N169.85 billion, viz: 91-day bills worth N24.37 billion and 364-day bills worth N145.48 billion. We expect their stop rates to increase, given the under-subscription witnessed during bond auctions last week which was mainly due to the weak patronage by FPIs amid foreign exchange rate risk.”

Meanwhile the decline in cost of funds recorded last week in the interbank money market is expected to continue this week following expected inflow of N1.33 trillion comprising N563.15 billion from maturing secondary market (Open Market Operations, OMO) TBs and N769.52 billion from statutory allocation  to the three tiers of government. Last week, short term interest rate fell marginally by 50 basis points (bpts) following inflow N92.3 billion from matured TBs.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 29 bpts to 17.71 percent last week from 18 percent the previous week. Similar, interest rate on Overnight lending fell by 78 bpts to 18.79 percent from 19.57 percent.

This trend according to analysts at Cowry Assets will be sustained courtesy of the huge  inflow of N1.33 trillion. “We expect NIBOR to contract as N563.15 billion worth of T-bills and N769.52 billion FAAC recent inflows create ease in financial system liquidity”, they said.

Naira appreciates further

The naira will this week sustain its two weeks upward trend against the dollar in the Investors and Exporters (I&E) window while the nation’s external reserve declines further below $44 billion, the first time since March.

Divergent naira outlooks as CBN increases forex intervention to forestall depreciation(Opens in a new browser tab)

Last week, the naira appreciated by 30 kobo in the I&E window, as the indicative exchange rate dropped to N363.14 per dollar at the close of business on Friday, from N363.42 per dollar the previous week. This represented the second consecutive week of naira appreciation in the window, after four weeks of steady depreciation, with the I&E exchange rate rising to N363.44 per dollar as at August 9 from N360.79 on July 19.

The appreciation of the naira followed increased intervention of the CBN in the window, reflected in $3.6 billion traded in seven days, from Wednesday August 14 to Friday last week.

Investigations revealed that most of the dollars were injected by the CBN, in its bid to reverse the depreciation suffered by the naira since July 19.

The CBN also sustained its weekly intervention in the interbank foreign exchange market, with its weekly injection of $210 million sold on Tuesday. The apex bank allocated to $100 million to the wholesale segment, while the SME segment and Invisibles each received $55 million.

Reflecting the impact of the increased intervention by the CBN amidst dwindling dollar inflow from FPIs, the nation’s external reserved dropped further to $44.067 billion as at Thursday last week, indicating weekly decline of $358 million, from Thursday August 15.

Financial Vanguard analysis showed that the reserve has declined by $836 million this month. Analysts expect this declining trend to persist this week, with the reserve falling below $44 billion by the end of the month, the lowest since March 22 of this year.

“If our projection of a decline in domestic oil production is correct, the depletion in external reserves is expected to continue. The increased demand pressure expected at the forex market would also push external reserves down as the CBN strives to defend the currency”, said analysts at Lagos based Financial Derivatives Company Limited, in the company’s Bi-Monthly report issued last week.


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