By Babajide Komolafe
Foreign exchange sales by oil firms dropped sharply by 58 per cent in February while the interbank money market recorded net outflow of N162.56 billion.

Vanguard investigation revealed that estimated foreign exchange sales by oil firms in February dropped to $454 million from $1.1 billion. This however did not impact negatively on the exchange rate of the naira in the foreign exchange market as the naira recorded significant appreciation in both official and interbank segment during the month. At the official market the naira appreciated by 115 kobo, as the official exchange rate dropped to N155.9 per dollar at the end of month from N157.05 at the beginning of the month.

Also at the interbank segment, the naira gained 361 kobo as the interbank exchange rate dropped to N157.7 per dollar from N161.31 at the beginning of the month. The previous month the naira depreciated by 35 kobo in the official market and by 180 kobo at the interbank market.

The appreciation in the naira despite sharp decline in supply from oil firms was attributed to decline in foreign exchange demand, a factor attributed to the National Assembly probe of oil subsidy. This was reflected in
results of foreign exchange auctions conducted by the Central Bank of Nigeria (CBN) during the month.

The apex bank offered to sell $2.1 billion but sold $1.8475 billion indicating 3.6 per cent decline when compared with $1.919 billion sold the previous month. A senior foreign exchange dealer, who does not want his name mentioned,  told Vanguard, it was unusual for the amount of foreign exchange sold to be lower than amount offered, adding that this indicated lull in demand for foreign exchange demand during the month.

However market operators could not identify why foreign exchange sales by oil firms dropped sharply during the month. An senior analysts with an umbrella body in the bank, who pleaded anonymity said, “It is believed that the oil firms sold much foreign exchange in January in anticipation of appreciation of the naira in February.

Market operators however expressed optimism that the naira would further appreciate further in the year, saying that with oil subsidy probe, demand for foreign exchange particularly for importation of petroleum, which accounted for 25 per cent of foreign exchange demand last year, would be much lower this year, while supply from autonomous sources like oil firms is expected to increase.

“We are already seeing increase foreign exchange flow for investment in FGN Bonds and we expect this trend to continue given the relative high interest rate level in Nigeria,” said a senior bank treasury official, who do not want to be mentioned.

Interbank records N162bn net outflow

On the other hand, the interbank money market recorded net outflow of N162.56 billion in February. This represents 38 per cent decline when compared with N262 billion net outflows recorded the previous month.

During the month, the market experienced inflow of N644.03 billion. The sources of inflow were treasury bills (N446.98 billion), statutory allocations (N222 billion), Excess crude fund allocation (N51.03 billion), Cash Call funds (N83.09 billion) and Personnel cost funds (N75 billion).

The market however experience outflow of N806.59 billion. The sources of outflow were foreign exchange purchase (N291.7 billion), treasury bills investment (N446.98), NNPC withdrawal (N67.9 billion).

But despite the net outflow, cost of funds closed the month slightly lower. Interest rate on Call lending fell by 37 basis points to 13.46 per cent at the end of the month. Interest rates on 7-Days and 30-Days lending declined by 29 basis points and 0.4 per cent basis points to 14 and 14.67 per cent respectively.

Data from Kakawa Discount House shows that the market opened with robust net liquidity level of N250 billion, which caused interest rates on the three short tenured funds (Call, 7-Days and 30-Days)  to declined by about 35 basis on the average.

Market liquidity however fell sharply to N22 billion in the first full week of the month which end on the 10th. During the week, N220 billion left the market for foreign exchange purchases and investment in treasury bills, while N212.9 billion came through matured treasury bills. Hence interest rates on the short tenured funds rose to 14.92, 15.29     15.86 per cent from 13.25, 13.75, 14.21 per cent the previous week.

Cost of funds however stabilised relatively in the third week as inflow of N134 billion from Cash Call funds ad Excess crude fund moderated impact of N163 billion outflow through foreign exchange purchases and NNPC withdrawal. Hence market liquidity remained low at N22.38 billion.

In the third full week, market liquidity however worsened to  minus N9.65 billion due to outflow of N290.43 billion for treasury bills investment and foreign exchange purchases wiped out the effect of N184 billion inflow from matured FGN Bonds and treasury bills.

Market liquidity revived in the last three days of the month due to inflow of N297 billion from statutory allocation and Personnel cost fund, which moderated impact of N45.46 billion outflow for foreign exchange purchases.

This caused market liquidity to rise N206.15 billion and  interest rates on the three short tenured funds to fall  by 118 basis points on the average. Call  money fell to 13.46 from 14.53, while 7-Days and 30-Days fell to 14.0 and  14.67  from 15.39 and    15.75 per cent respectively.

Demand for govt securities rises  by 19% to N1.11tr Demand for government securities rose by 19 per cent to N1.114 trillion in February, while total amount sold rose slightly to N446.98 billion from N422.6 billion.

During the month, the apex bank offered N669.28 billion securities also called treasury bills. This  represents 26.2 per cent increase when compared with N529.98 billion offered in January.  It offered N520 billion worth of secondary market (reissued) bills and N149.28 billion worth of primary market (freshly issued) bills.

Total subscription to the OMO bills stood at N1 trillion represent 100 per cent oversubcription, while total subscription to the Primary market bills stood at N316.85 billion represent over 100 per cent oversubcription.

On the other hand the apex bank repaid matured bills worth N422.61 billion during the month. This represents 13.2 per cent decline when compared to N212.91 billion matured bills repaid the previous month. Consequently net investment in government securities rose by 32 per cent to N234 billion in February from N177 billion the previous month.