The Central Bank of Nigeria, CBN, will this week intensify its liquidity mop up activities in response to inflow of N553.8 billion into the interbank money market. Last week, the interbank money market received inflow of N601.9 billion from matured treasury bills, TBs. In response the CBN sold primary market (fresh) TBs worth N208.6 billion. The apex bank also issued secondary market (Open Market Operation, OMO) TBs worth N800 billion in two auctions. The OMO bills were, however, undersubscribed as the CBN was only able to sell N270.17 billion.
For the first auction on Thursday, the CBN offered N400 billion across three instruments to keep system liquidity in check in the face of huge maturities. With the exception of the 364 Days TBs, the offer was grossly undersubscribed hence the CBN could only sell N48.1 billion or 12 percent of the amount on offer at stop rates of 11.6 percent, 11.8 percent and 13 percent for the 91-day, 189-day and 364-day instruments, higher than those of previous auction and rates at the treasury bills auction.
On Friday, the CBN held another OMO auction, offering N400 billion worth of 90-day, 188-day and 363-day TBs. While the 90-day and 188-day TBs were gross undersubscribed, the 364-day TBs were oversubscribed. As a result the CBN was only able to sell N222.1 billion but at higher stop rates. The TBs were sold at stop rates of 11.6 percent, 11.8 percent and 13.5 percent for the 90-day, 188-day and 363-day instruments respectively. As a result of the liquidity inflow, average short term cost of funds fell by 840 basis points (bpts), with interest rate on Collateralised (Open Buy Back, OBB) lending falling by 842 bpts to 9.29 percent last week from 17.71 percent the previous week. Similarly, interest rate on Overnight lending dropped to 10.5 percent last week from 18.79 percent the previous week.
While analysts at Lagos based Cowry Assets Management Limited expect that the inflow of N553.8 billion from maturing TBs will further moderate cost of funds this week, analysts at Afrinvest Limited and United Capital Plc, however, projected that the volume and frequency of OMO bills auction by the CBN will determine direction of cost of funds. According to analysts at Cowry Assets Management Limited, “In the new week, treasury bills worth N553.84 billion will mature via OMO; hence, we expect interbank rates to moderate further amid anticipated boost in financial system liquidity.”
Analysts at Afrinvest, however, said: “We expect the apex bank to keep liquidity in check through regular auctions, albeit at higher rates, given OMO maturities of N204.1bn expected next week.” Similarly analysts at United Capital said: “Looking ahead, we expect the CBN to maintain its liquidity tightening stance, especially as another N204.1bn OMO maturity is scheduled to hit the system on Thursday. In all, we expect the money market rates to reflect the direction of liquidity in the system.” External reserve fall by $1.43bn in August The nation’s external reserve fell by $1.23 billion last month to $43.673 billion reflecting impact of increased dollar sales by the CBN in its bid to defend the nation’s currency in the face of huge dollar demand by foreign portfolio investors exiting the nation’s fixed income market.
Data from CBN showed that the reserve fell to $43.673 billion on Thursday last week, down by $394 million from $44.067 billion Thursday the previous week. This increased the month-to-date decline to $1.23 billion, from $44.903 billion at the end of July. The above represents the second monthly decline in the reserve since February 28 when it commenced a steady rise from $41.29 billion, after falling persistently for seven months, from peak of $47.989 billion on July 5, 2018. Vanguard
Pix: CBN Governor, Godwin Emefiele