May 31, 2021

Mixed outlook as cost of funds defies N515bn inflow

By Babajide Komolafe

Cost of funds in the interbank money market   rose to 19.2 per cent last week, defying N515 billion inflow during the week.

The inflow comprised N110 billion from matured secondary market (Open Market Operations, OMO) treasury bills, N14.91 billion from FGN Bond Coupon payment and statutory allocation of N390 billion from Federation Accounts Allocation Committee (FAAC)   to the state.

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The impact of the inflow was, however, cancelled by outflow comprising N87.95 billion through Nigerian Treasury Bills (NTB) issuance, N41 billion through OMO bills auction,  debit for Cash Reserve Ratio (CRR) and foreign exchange auction.

Consequently, cost of funds rose by 220 basis points with interest rate on overnight lending rising to 19.2 per cent last week from 17 per cent the previous week.

Similarly interest rate on Collateralised (Open Buy Back, OBB) lending rose to 18.7 per cent last week from 16.5 per cent the previous week. Analysts were, however, divided in their projections as to whether this trend will persist this week.

Projecting that interbank interest rates will move in different directions this week, analysts at  Cowry  Asset Management Limited, said: “In the new week, treasury bills worth N55.46 billion will mature via OMO; hence, we expect interbank rates to move in mixed directions amid marginal inflow of matured OMO bills.”

Similarly, analysts at Afrinvest Securities said: “At the start of the week, OBB and Overnight  rates fell 1.5percentage points (ppts) and 1.8ppts to settle at 15.0% and 15.3% respectively from last Friday as system liquidity closed at 486.5 billion. By the end of the week, the rates closed at 18.7% and 19.2%, down 2.2ppts and 3.0ppts week-on week.

“In the coming week, OMO maturities worth 55.5 billion will impact system liquidity. Thus, we expect CBN to keep rates and system liquidity in check through regular auctions.

On their part, analysts at Cordros Securities said: “We expect system liquidity to remain tight and the OVN rate to trend northwards in the absence of any significant inflows to the system.”