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CBN’s liquidity mop up to exceed N14trn in 2019

Solid Mineral: CBN set to off-take Nigeria gold —NEXIM boss
CBN

…Analysts project higher inflation rate for October

By Babajide Komolafe

THE liquidity mop-up activities of the Central Bank of Nigeria, CBN, through sale of secondary market treasury bills (TBs) will exceed N14 trillion mark by the end of this year.

Financial Vanguard investigations revealed that the apex bank as at last week, has sold secondary market (Open Market Operations, OMO) TBs mopping up N13 trillion already this year.

This implies average weekly OMO sale of N309 billion.

Last week the apex bank sold OMO TBs to mop up N243.77 billion from the interbank money market. This,  in addition to the sale of  N125.24 billion worth of  Nigeria Treasury Bills (NTBs) in the primary market, translates to a total mop-up of N369 billion. This moderated the impact of the inflow of N406 billion from matured OMO TBs and hence prompted cost of funds to rise in the interbank money market.

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Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 864 basis points (bpts) to 13.07 percent last week from 4.43 percent the previous week. Similarly, interest rate on Overnight lending rose by 850 bpts to 14.07 percent last week from 5.57 percent the previous week.

Naira in mixed performance as CBN injects $552m

On the foreign exchange scene, the naira recorded mixed performance in the Investors and Exporters (I&E) window and in the parallel market.

While the naira appreciated by 19 kobo in the I&E window, it depreciated in the parallel market by 30 kobo.

Data from FMDQ showed that the I&E indicative exchange rate dropped to N362.58 per dollar last week from N362.77 per dollar the previous week, indicating 19 kobo depreciation for the naira.

According to the naijabdcs.com, the exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON), the parallel market exchange rate rose to N358.3 per dollar last week from N358 per dollar the previous week, indicating 30 kobo depreciation for the naira.

Meanwhile, the Central Bank of Nigeria (CBN), last week stepped up its intervention in the foreign exchange market by injecting $551.75 million into the interbank foreign exchange market.

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 SME window and $55 million for invisibles.

This was complemented with the injection of another $341.75 million and CYN14.7 million on Friday through the Retail Secondary Market Intervention Sales (SMIS).

In a statement announcing the injection on Friday, CBN’s Director of Corporate Communications, Isaac Okoroafor, said that the dollar intervention was for requests in the agricultural and raw materials sectors, while the Chinese Yuan, on the other hand, was for Renminbi denominated Letters of Credit.

He  further reiterated that the market continued to enjoy stability because of the regular interventions by the Bank.

He also noted that the demand management approach introduced by the Bank had yielded positive results, adding that the CBN management would remain committed to ensuring that all the sectors of the forex market continue to enjoy access to the needed foreign exchange.

Analysts project higher inflation rate for October

Analysts have projected higher inflation rate for October, 2019 citing the increasing impact of the border closure as well as rise in money supply fuelled by increased lending activities of banks.

The projections are coming ahead of the release of the October Inflation data this week by the National Bureau of Statistics (NBS).

The inflation rate declined for three consecutive months to 11.02 percent in August from 11.4 percent in May.

It, however, rose in September to 11.24 due to sharp increase in prices prompted by the closure of the nation’s boarder.

This upward trend according to analysts persisted in October hence a higher inflation rate for the month.

Analysts at Lagos based Financial Derivatives Company Limited (FDC) projected 11.36 percent inflation rate for October, implying 36 basis points increase compared to the September inflation rate of 11.24 percent.

Explaining the basis for their projection, they said: “The factors driving inflation remain supply shocks with underlying cost push pressures. The impact of the border closure was further exacerbated by unusual heavy rainfall in October, which had a negative impact on harvest. Money supply growth also played a crucial role in stoking inflationary pressures. M2 grew by 2.22 percent in September and is expected to increase by five percent  in October as banks increase lending in compliance with the CBN’s 65 percent  Loan-Deposit-Ratio (LDR) directive. Average opening position of the interbank money market spiked by 75.41 percent  to N326.04 billion.

“Money supply has a direct relationship with the general price level. In September, broad money supply (M2) grew by 2.22 percent to N27.66 trillion.

It is expected to increase by five percent  in October as banks increase lending to creditworthy customers in compliance with the CBN’s 65 percent  LDR directive. Credit to the private sector was up 12.15 percent  to N25.47 trillion  in September.”

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On their part, analysts at Lagos based Meristem Securities Limited projected 11.32 percent inflation rate for October, implying eight bpts increase compared to the 11.24 percent inflation rate for September.

Also citing the impact of the continued border closure, they said: “Data from our most recent survey of commodity and food prices suggests a significant expansion in the prices of staples such as Rice, Poultry and Oil in October. Just before announcement of the border closure in August, a 50kg bag of Rice retailed for  N12,000. As the full effect of the closure set in, prices surged by between 75percent and 100 percent to NGN21,000 and NGN24,000 per bag. Poultry products (Chicken and Turkey) and Oils have also recorded average price expansions of 33 percent and 17 percent respectively over the same period. “Combined, these items formed the strongest inflationary pressure points, as prices of other local staples remained relatively stable”.

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