Excess liquidity to persist in interbank due to inflow of ₦1trn TBs
The excess liquidity prevailing in the interbank money market will persist this week due to inflows of over ₦1 trillion expected from matured treasury bills and statutory allocation to the three tiers of government.
The Federation Accounts Allocation Committee, FAAC, meeting held on Friday ended with the three tiers of government sharing ₦821 billion as statutory allocation for June. This allocation which represents the highest monthly allocation since 2015, will translate to huge liquidity injection into the interbank money market this week.
In addition, the market will receive inflow of ₦539.35 billion from maturing treasury bills, TBs, which will offset outflow of ₦207 billion from primary market (fresh) TBs to be auctioned by the CBN this week.
While the CBN is expected to conduct liquidity mop up operation by selling Open Market Operation, OMO, TBs, the market is expected to be awash with liquidity, hence cost of funds is expected to sustain the downward trend recorded last week.
Last week, in spite of liquidity mop up of ₦350 billion, via OMO bills and primary TB auction of ₦253.93 billion, as well as outflow of ₦66.9 billion via FGN Bond auction, translating to outflow of ₦670.83 billion, cost of funds moderated downwards, helped by inflow of ₦454.32 billion comprising ₦404.32 billion from matured TBs and ₦50 billion from payment of FGN bond coupon.
As a result, interest rate on Collateralised lending (Open Buy Back, OBB), dropped by 817 basis points (bpts) to 6.83 percent last week from 15 percent the previous week. Similarly, interest rate on Overnight lending dropped by 842 bpts to 7.25 percent last week from 15.67 percent the previous week.
– Naira depreciates as CBN sells $550 million, CNY69m –
The naira depreciated in the Investors and Exporters, I&E, window last week, in spite of 30 percent increase in amount of dollars traded as well as increased dollar injection by the CBN.
According to FMDQ, the indicative exchange rate of the window rose to ₦362.28 per dollar last week from ₦361.6 per dollar the previous week, translating to 68 kobo depreciation of the naira. Financial Vanguard analysis revealed that the amount of dollars traded in the window rose to $909.45 million last week from $700 million the previous week, translating to 30 percent increase.
Last week the apex bank stepped up its weekly intervention in the foreign exchange market, while it also announced the result of the first auction of the Chinese Yuan conducted the previous week. On Tuesday, the CBN injected $210 million, allocating $100 million to the wholesale segment of the interbank foreign exchange market, $55 million to the SME window and $55 million to dollar sales for invisibles.
This was complemented on Friday with sale of $340.5 million through Retail Secondary Market Intervention Sale (RSMIS), during which the apex bank also announced the sale of 69.85 million of Chinese Yuan, CNY.
Announcing the intervention, Acting Director, Corporate Communications, CBN, Mr. Isaac Okoroafor, said: “Following last week’s take-off of its intervention in the sale of foreign exchange in Chinese Yuan, CNY, the CBN, on Friday, July 27, 2018, injected the sum $340.5 million into the interbank Retail Secondary Market Intervention Sales. This is in addition to the sale of CNY 69.86 million in the spot and short tenored forwards.”
– Raw materials and machinery –
He explained that the US dollar denominated interventions were only for concerns in the agricultural and raw materials sectors. Okorafor stated that the sales in the Chinese Yuan were through a combination of spot and 15-day tenors, adding that the exercise, in line with its guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials and machinery.
He explained that the requests attended to were bids received from authorized dealers, adding that the availability of Renminbi was sure to ease pressure on the Nigerian foreign exchange market. He attributed the relative stability in the foreign exchange market hugely to the continued intervention of the CBN as well as the sustained increase in crude oil prices in the international market.
Okoroafor further assured that the CBN would remain committed to ensuring that all the sectors continue to enjoy access to the foreign exchange required for the business concerns, whether in United States dollars or Chinese yuan.
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