By Babajide Komolafe
Cost of funds in the interbank money market and exchange rate of the naira would rise further this week, says Financial Market Dealers Association of Nigeria

This prediction comes on the heels of the severe depreciation suffered by the naira at the interbank, BDC and parallel segment of the nation’s exchange rate last week, while interbank interest rate end the week on an upward trend.

“Considering the liquidity status of the market and the expected outflow through Treasury bill, there is strong likelihood for rates to sustain its upward movement next week.

“With the closure of the  Wholesale Dutch Auction System (WDAS) window, and the funding needs on the increase, Naira might suffer huge setback against the dollar.”,  the Association stated in its Weekly Review of the financial market.

Reviewing interest rate movement for the week, the Association of banks’ treasury  department said, “The rising rate which pitched at 12.00%, 13.00% and 13.50% on the average for Call, 7 days and 30 days respectively last week doused in the week under review to 6.00%, 7.00% and 10.00% on the average following the huge fiscal inflow from the Federation Account, Matured Treasury bill and FGN Bond. Market opened the week with slight moderation of rates as a result of Federation Account Allocation Committee) FAAC expectation.

Overnight/Call was 12.1250%, 7days was 12.1667%, and 30days was 13.000%. On the second trading day of the week, Call money crashed to 4.5417%, 7days 5.3333% and 30 days money 8.8750% owing to FAAC funds put at N229.39bn and the matured bond totalling N110.00bn. At the third trading, rates moderated upward marginally by 4 basis points, 16 basis points and 41 basis points respectively following the rise in Foreign exchange settlement worth N120bn by the Deposit Money Banks.

On Thursday, interest rates increased across board except 365 days when compared to Wednesday’s figures . On the last trading of the week, Call/Overnight increased to 5.0417%, 7 days 6.3750% and 30 days 9.8333% as a result of FGN bond settlement worth N70bn. The week recorded some outflows vide Federal Government’s Bond and Foreign exchange funding totalling N250.00bn while inflows were FAAC funds of N229.39bn, Matured Treasury bill and Bond worth N150bn. Liquidity in the market as at the beginning Friday’s trade was N241bn.

On development in the foreign exchange market, it noted, “The demand for foreign exchange further stepped up at the WDAS in the week and resulted to volatility in the market. This was hinged on the pronouncement that WDAS auction will close for the year at the end of the week trades. The huge demand that further resulted to drop in the value of Naira against the USD$ in the Inter-bank market was due to CBN’s circular on unconfirmed Letter of Credit (LCs) which “restricted its negotiation/funding to Inter-bank market”.

Further analysis of the markets showed that Naira dropped marginally by 11kobo on Wednesday relative to Monday’s exchange rate and lost 16 kobo when compared with the corresponding period of the preceding week. At the interbank market, Naira dropped N3.05 relative to its opening rate and shed N2.93 when compared to the corresponding period of the preceding week. The BDC and Parallel markets also depreciated as they both closed the week at N156  and N157 per dollar respectively; reflecting N4 and N loss relative to last week’s closing rate.

“In its quest to bridge the supply gaps, and strengthen the value of Naira against the dollar, the Central Bank of Nigeria increased the volume of foreign exchange supply to the market in the week under review. At the bi-weekly auction of Monday and Wednesday, it offered and sold $1.2billion.

The second highest weekly sales since the beginning of the year. Market demand was $1.285bn in the week under review. The observed market demand was 7.1% higher than amount eventually sold unlike last week where market demand exceeded amount sold by 21.9. Besides the WDAS window, energy giants inflows worth over $24.4 million  added dollar liquidity to the interbank market.”