THE sharp increase in cost of funds in the interbank money market last week will persist this week, following the N275 billion liquidity mop up by the Central Bank of Nigeria (CBN).
Last week, interbank interest rate jumped by 650 basis points (bpts) due to scarcity of funds triggered by outflows via foreign exchange and treasury bills (TBs) purchases.
Data from the Financial Market Dealers Quote (FMDQ) showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 720 bpts to 11.6 percent last week from 4.5 percent the previous week. Similarly, interest rate on Overnight lending rose by 684 bpts to 12.17 percent from 5.33 percent the previous week.
During the week, market liquidity was undermined by N629.6 billion outflow via TB auctions. These comprise primary market TB sale of N354 billion, and N275 worth of secondary market (Open Market Operations, OMO) TB sales conducted by the CBN to mop up liquidity from the market.
On the other hand, the market experienced N275.21 billion inflow from matured TBs, which moderated the impact of the outflow. This week, the market will enjoy lower inflow from matured TBs, of N67.68 billion.
This combined with expected outflow to fund dollar purchases, and possibility of further liquidity mop up by the CBN, will intensify scarcity of funds in the market and thus further increase in cost of funds.
Naira records mixed performance as I&E turnover drops to $1.63bn The naira recorded mixed performance in the two major segments of the foreign exchange market last week, even as the volume of dollars (turnover) traded in the Investors and Exporters (I&E) window dropped by 11 percent during the week.
At the parallel market, the naira appreciated by N1 as the parallel market exchange rate dropped to N363 per dollar on Friday from N364 per dollar the previous week.
The naira, however, depreciated by 35 kobo in the I&E window during the week. Data from FMDQ showed that the indicative exchange rate for the window rose to N360.70 per dollar last week from N360.35 the previous week.
the other hand, volume of dollars traded or market turnover dropped by 11 percent to $1.63 billion last week from $1.84 billion the previous week. As a result the amount of dollars traded in the window since the beginning of the year rose to $6.86 billion from $5.23 billion the previous week.
Meanwhile the CBN sustained its intervention in the foreign exchange market last week as it injected $210 million into the interbank market. Acting Director, Corporate Communications Department (CCD), CBN, Mr. Isaac Okorafor confirmed the injection saying: “The CBN offered $100million to authorized dealers in the wholesale segment of the market, while the Small and Medium Enterprises (SMEs) segment received the sum of $55 million.
Customers requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others, were also allocated the sum of $55 million.” External reservesrise to $40.6bn The nation’s external reserve maintained its upward trend last week rising by $295 million.
Data from the CBN showed that the reserves rose to $40.63 billion as at Thursday last week, from N40.33 billion, Thursday of the previous week. Thus the external reserves have gained $1.86 billion since the beginning of the year.
Analysts at Lagos based Financial Derivatives Company Limited projected further rise in the reserves in view of positive outlook for crude oil prices. “Given the positive outlook for oil prices, the gross external reserves are expected to continue to record notable accretion in the coming weeks.
However, any negative movement in oil price and domestic production will reverse the current trend,” they said in the FDC Bi-Monthly bulletin issued last week.
