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Cost of funds to fall as N606bn inflow boosts interbank liquidity

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•Naira appreciates as external reserves fall to $42.1bn

By Babajide Komolafe

THE rise in the cost of funds in the interbank money market last week will be reversed this week due to inflow of N606 billion inflows from maturing treasury bills (TBs) (CBN)

CBN, Expert says retention of MPR at 13.5% in order

Last week average short term cost of funds rose by 186 basis points (bpts) due to outflow of N549.03 billion comprising N100 billion outflow for foreign exchange purchase, N146.61 billion outflow through FGN bond sales by the Debt Management Office (DMO) as well as N302.42 billion liquidity mop-up by the CBN through secondary market (Open Market Operations, OMO) TBs last week.

Reflecting the impact of the outflow which outweigh inflow of N422 billion through matured TBs, the interest rate on Colateralised (Open Buy Back, OBB) lending rose by 200 bpts to 8.43 per cent last week from 6.43 per cent the previous week. Similarly, the interest rate on Overnight lending rose by 172 bpts to 9.29 per cent last week from 7.57 per cent the previous week.

This trend is expected to be reversed this week due to inflow of N606.34 billion inflow from maturing TBs. The inflow comprises N133.97 billion from maturing primary market TBs and N472.37 billion from maturing OMO bills.

On the other hand, the apex bank will sell primary market TBs worth N133.97 billion to rollover maturing bills of the same value.

Analysts at Cowry Assets Management Limited projected that the primary market TBs will be sold at higher stop rates in line with the upward trend of interest rates on fixed income instruments which were reinforced by the result of DMO FGN bond auction of last week.

“In the new week, CBN will rollover T-bills worth N133.97 billion, viz: 91-day bills worth N10.00 billion, 182-day bills worth N17.60 billion and 364-day bills worth N106.37 billion. We expect their stop rates to increase marginally particularly across the 182-day and 364-day tenure buckets amid economic uncertainty. We also expect NIBOR to moderate amid maturing N472.37 billion T-bills via secondary market”, said analysts at Cowry Assets Management Limited.

Also read: Investors anticipate higher yields on TBs as N786bn hit interbank market

Naira appreciates as external reserves fall to $42.1bn

On the foreign exchange scene, the naira is expected to maintain its upward trend against the dollar this week even as the nation’s external reserves declined further to $42.107 billion last week Wednesday.

Data from FMDQ showed that that naira appreciated further last week in the Investors and Exporters (I&E) window as the indicative exchange rate dropped to N362.02 per dollar on Friday from N362.39 per dollar the previous week. This translated to 37 kobo appreciation for the naira.

The naira has been on the upward trend, gaining N1.42 since August 8, when it depreciated to N363.44 per dollar, the lowest level this year in the I&E window. The depreciation was, however, reversed following increased dollar sales by the CBN to defend the naira in the face of massive dollar demand by foreign portfolio investors exiting the nation’s fixed income market.

The increased dollar sales however triggered a downward trend in the nation’s external reserves which worsened to $42.107 billion last week.

Data from the apex bank showed that the external reserves fell to $42.107 billion on Wednesday last week (September 25th) from $42.561 billion on Wednesday of the previous week (September 18Th) , translating to the week-on-week decline of $354 million.

The CBN data also indicated a month-to-date decline of $1.5 billion in the external reserves, which is higher the $1.318 billion decline recorded in August.

After seven months of persistent decline from a peak of $47.989 on July 5th  of 2018, the reserves enjoyed a steady upward trend from $41.2 billion on February 28, 2019. The upward trend peaked at $45.175 billion on June 10, 2019, from where it commenced another downward trend to date.

Financial Vanguard analysis showed that the reserves have fallen by $3.068 billion between June 10 and September 25.


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