By Babajide Komolafe

The Central Bank of Nigeria, CBN, sold $1.58 billion foreign exchange in November while demand fell by 26 per cent. Cost of funds in the interbank money market was however relatively stable in November, in sharp contrast to the volatility and sharp increase recorded in October.

Foreign Exchange Market
Analysis of  official foreign exchange sales through the bi-weekly Wholesale Dutch Auction System (WDAS) sessions show that demand for foreign exchange fell to $1.85 billion from $2.5 billion in September, indicating 26 per cent decline.
The apex bank on the other hand offered $1.72 billion, down from $2.1 billion the previous month, while it sold $1.58 billion, down from $2.37 billion in October.

The lull in foreign exchange demand during the month impacted positively on the Naira as it appreciated in the official market by 110 kobo. From N149.85 per dollar at the end of October, the official exchange rate fell to N148.75 per dollar at the end of November. However, the naira recorded marginal appreciation of 7.2 kobo in the interbank foreign exchange market, as the interbank foreign exchange rate fell to N150.7775 at end of November  from N150.85 at the end of October.

Meanwhile, the naira recorded mixed fortunes last week despite 25 per decline in foreign exchange demand at the official market. Though the naira it appreciated by 20 kobo in the official market, it depreciated by 69.5 kobo at the interbank market. Demand for foreign exchange dropped to $436 million from $587 million the previous week, while the apex bank apex bank offered $450 million but sold $436 million, apparently to to reduce volatility and re-emphasized its commitment to manage $/=N=150.00

Interbank Money Market
Interbank interest rates closed the month of November relatively stable, courtesy of the decision of the CBN to maintain the Monetary Policy Rate at 6.25 per cent.

Interest rate for secured borrowing closed a marginally higher at 7.4 from 7.25 per cent in October, while cost for Call borrowing fell to 7.6 from 8.2 per cent.  Interest rate on Seven Days borrowing closed the month stable at 8.8 per cent, while Cost for 30 Days borrowing rose slightly to 10.9 from 10.3 per cent.

The relative stability of cost of funds when compared to the closing level in October was occasioned by the retention of the MPC at 6.25 per cent.

During the month, specifically from Monday 22ng to Tuesday 23rd,  the Monetary Policy Committee of the apex bank met and decided among other things to retain the MPR at 6.25 per cent but narrowed the band around the rate to 200 basis points by increasing its deposit rate to 4.25 per cent from 4.0 per cent.

Prior to the meeting, there was apprehension over the whether the MPC will increase the MPR or retained it. This apprehension caused upsurge in interbank rates  the few days preceding the meeting. The decision to  retain the MPR  caused  cost of funds fell in the interbank market by one fifth. Interest rate on Call,  Seven Days, and 30 Days lending  fell to 4.25, 7.0, and 9.8 per cent from 9.25,10.3 and 12.1 per cent respectively.

According to the Committee, the ‘’need to retain flexibility and allow the effect of the previous rate increase to work through the system’’. The Committee at its previous meeting raised the MPR by 25 basis points to 6.25 per cent.

But last week, interbank rates increased steadily from the beginning   to Tuesday, moderated downwards marginally at the short-end of the market on Wednesday but raced northwards to close  of the week due to outflows from the system.

According to the Financial Market Dealers Association (FMDA) report for the week, ‘’Market opened the week with Overnight/Call at 7.6250%, 7days at 8.5417%, 30days at 10.6250%. On the second trading day of the week, Call money increased to 8.1250%, 7days 8.7917% and 30 days 10.9067% as a result of Foreign exchange funding worth =N=34.3bn. At the third trading of the week, Call/Overnight and 7days money moderated downwards by 8 and 13 basis points but 30 days rose marginally by 4 basis points in response to the second foreign exchange funding of the week put at =N=30bn. On Thursday, interest rates increased across board relative to

Wednesday’s figures as call, 7 days and 30 days money pitched at 9.0000%, 9.6667% and  11.4167% respectively.
‘’On  the last trading of the week, rates spiked sharply across board recording 175 basis points for call, 183 basis points for 7 days and 133 basis points for 30 days as a result of funding of NNPC’s foreign exchange sales to the Deposit Money Banks value at =N=45bn.’’

The secured Open Buy Back (OBB) mirrored the interbank Naira market. It began the week on an average of 7.00% for both bank and Discount Houses and closed the week under review at 8.25% for both bank and discount houses representing 125 basis points increase relative to Monday’s rate and 345 basis points when compared to closing rate  of last week.