Cost of funds nosedives as CBN halts liquidity mop-up operations

COST of funds in the interbank money market fell sharply last week, as the Central Bank of Nigeria (CBN), for the first time this year, suspended its weekly liquidity mop-up operations signalling relaxation of its tight money policy. Average short term interest rates nose-dived by 2, 174 basis points (bpts), while interest rate on Collateralised lending fell by 2,066 bpts.




Since the beginning of the year, the CBN had been issuing secondary market treasury bills (TBs) also known as Open Market Operations (OMO) bills to mop-up excess liquidity in the interbank money market. Aside the regular OMO TBs which are issued based on a quarterly issuance calendar, the apex bank also issues special OMO bills worth N100 billion occassionally, especially in anticipation of huge inflow of funds into the market.
The Central Bank of Nigeria, CBN, headquaters, Abuja.

However, contrary to expectation and in spite of N110 billion inflow from matured TBs, and expected inflow from the N532.8 billion statutory allocation disbursed by the Federal Allocation Accounts Committee (FAAC), the CBN did not issue any OMO TBs last week.

This move, which was described by analysts at Lagos based Afrinvest Plc, as ‘unprecedented’, fuels anticipation of expansionary monetary policy stance as indicated by the CBN Governor, Mr. Godwin Emefiele, in his keynote address at the annual Bankers Nite of the Chartered Institute of Bankers (CIBN) in Lagos, last month.

Emefiele had stated: “Monetary policy stance could change when the underlying fundamentals become supportive. If the pace of disinûation becomes adequate and we see inûation at predicted levels, I am very optimistic that MPC may begin to see strong justification for an easing of monetary policy, which may further accelerate the recovery process.”




With no OMO bills issued to mop-up liquidity, interbank money market liquidity, which had dropped to deficit of N92.8 billion on Tuesday from surplus of N183.9 billion the previous week due to outflow for dollar purchase, revived to N78 billion surplus at the close of last week.

As a result, cost of funds in the interbank money market, which closed the previous week in double digits, fell sharply, with average short term interest rates falling by 2, 174 basis points (bpts).

Data from the Financial Market
Dealers Quote showed that interest rate on Collateralised lending fell by 2,066 bpts to 5.17 percent from 25.83 percent the previous week. Similarly, interest rate on Overnight lending dropped by 2,283 to 6.25 percent from 29.08 percent.

However, analysts were uncertain if this trend will persist this week. While the market expects inflow of N218.1 billion from maturing TBs and the statutory allocation funds, the impact on cost of funds will be moderated as the CBN is expected to roll-over the maturing TBs while the Debt Management Office (DMO) will also issue N100 billion worth of FGN Bonds.
Investors inject $3bn in I&E in 4 weeks




Financial Vanguard investigations revealed that investors have injected $3 billion into the Investors and Exporters (I&E) window in the four weeks reflecting soaring confidence in the seven months window.

Analysis of daily transaction volume in the window from Monday, November 13 to last week Friday, shows increase in weekly volumes of dollars traded. From $674.3 million dollars in the week ending Friday November 17, the dollars traded rose to $727.9 million for the week ending November 24, indicating increase of 7.9 percent. For the week ending November 30, the volume of dollars traded rose further by 4.3percent to $759.2 million and further by 18.6 percent to $900.5 million for last week.

The upsurge in dollar inflow, however, did not impact positively on the naira, as it depreciated by one kobo against the dollar within the four week period. According to the FMDA, the indicative exchange rate of the naira for the window rose to N360.41 per dollar last week Friday from N360.4 per dollar on Friday November 10.




However the naira appreciated in the window last week by 24 kobo, as the indicative exchange rate dropped from N360.65 the previous week to N360.41 last week.

Meanwhile, the CBN sustained its weekly intervention in interbank foreign exchange market by injecting N210 million on Tuesday.

Announcing the injection in a statement, Acting Director Corporate Communications Department, CBN, Mr. Isaac Okoroafor, said: “The sum of $100million was offered to the wholesale segment, while the Small and Medium Enterprises (SMEs) segment got an allocation of $55 million. The invisibles segment (i.e. tuition fees, medical payments and Basic Travel Allowance (BTA), among others) was also allocated $55 million.”


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