By Babajide Komolafe
THE downward trend in interbank interest rates will persist this week, as inflow of N452 billion aggravates the prevailing excess liquidity in the interbank money market.

Last week, efforts by the Central Bank of Nigeria, CBN, to mop up excess liquidity in the interbank market via N600 billion Open Market Operation (OMO), treasury bills (TBs) offer proved ineffective, as the offer recorded 50 percent patronage of N300 billion.

This was in addition to N216 billion worth of fresh TBs sold by the CBN in a primary market auction, and resulted into outflow of N579 billion from the market. The effect of the outflow was, however, subdued by inflow of N899 billion comprising N360 billion inflow from statutory allocation funds to the three tiers of government, and N539 billion inflow from matured OMO bills.

As a result, interbank interest rates fell for the second consecutive weeks, with interest rate on Collateralised (Open Buy Back, OBB) lending falling by 250 basis points (bpts) to 4.33 percent last week from 6.83 percent the previous week. Similarly, interest rate on Overnight lending dropped by 190 bpts to 5.33 percent last week from 7.25 percent the previous week.

This week, the inflow of N452 billion from maturing OMO bills is expected to sustain the level of liquidity in the market and hence further moderation in cost of funds.

“This week, T-bills worth N452 billion will mature via the secondary market; hence, we expect relative ease in the financial system liquidity with resultant moderation in interbank rates”, said analysts at Lagos based Cowry Asset Management Limited.

Naira depreciates as external reserves decline persist

The naira, last week, depreciated for the second consecutive week in the Investors and Exporters (I&E) window while the volume of dollars traded fell by 5.4 percent. Data from FMDQ showed that the indicative exchange rate of the window rose to N362.67 per dollar last week from N362.28 per dollar the previous week, translating to 39 kobo depreciation.

Financial Vanguard analysis also showed that the volume of dollars traded fell by 5.4 percent to $860.22 million last week from $909.45 million the previous week. The naira, however, remained stable at N358.3 per dollar in the parallel market last week, while the CBN sustained its weekly foreign exchange sale of $210 million in the interbank foreign exchange market.

External reserves drop further 

Meanwhile the downward trend in the nation’s external reserves persisted last week, as the reserves fell to $47.069 billion, Thursday last week from $47.268 million Thursday the previous week, representing a weekly decline of $199 million and the fourth consecutively weekly decline.

Financial Vanguard analysis revealed that the reserves have been falling since Thursday July 5 when it peaked at $47.798 million. Since then the reserves have declined by $729 million or 1.5 percent, occasioned by increased foreign exchange intervention by the CBN in its bid to forestall depreciation of the naira in the face of increased dollar demand by foreign portfolio investors exiting the nation’s debt market.

This trend, according to the Managing Director/Chief Executive, Financial Derivatives Limited, Mr. Bismarck Rewane will persist till the end of the year.

Speaking last week at the Lagos Business School (LBS) Executive breakfast meeting, Rewane projected that the external reserves may fall to $30 billion by end of the year, if the pressure in the foreign exchange market persists.

“Realistically expect reserves to drop to $30 billion under pressure”, he said.