Cost of funds to drop further as cash saturates interbank market

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Cost of funds is expected to decline further this week in response to massive liquidity inflow of N1.3 trillion into the interbank money market.

Last week, short term cost of funds fell by 870 basis points (bpts) to 5.9 percent from 14.65 percent the previous week.

Specifically, interest rate on Collateralised (Open Buy Back, OBB) lending fell by 850 bpts to 5.5 percent last week from 14 percent the previous week. Similarly, interest rate on Over night lending fell by 897 bpts to 6.33 percent from 15.3 percent the previous week.

The sharp decline in cost of funds was triggered by inflow of N327.6 billion from matured secondary market (Open Market Operations, OMO) treasury bills, which cancelled the impact of outflow of N128.2 billion through OMO TB sales conducted by Central Bank of Nigeria (CBN).

This week, the interbank money market will enjoy massive inflow of liquidity estimated at N1.3 trillion. This comprise N606.4 billion from maturing FGN Bonds, N440 billion from maturing OMO TBs, N158.8 billion from maturing Nigeria Treasury Bills (NTBs) and N47.17 billion from bond coupon payment.

These inflows, according to analysts, will prompt further decline in cost of funds this week.

In their forecast for the week, analysts at Cowry Assets Management Limited said: “In the new week, T-bills worth N595.27 billion will mature via the primary and secondary markets which will offset T-bills worth N154.38 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N4.38 billion, 182-day bills worth N10.00 billion and 364-day bills worth N140.00 billion. Hence, we expect the stop rates to decline marginally amid increasing demand for the instruments.”

Making similar projection, analysts at Cordros Capital said, “In the coming week, we expect money market rates to remain within the single digit band as OMO maturity worth ¦ 440.9 billion is expected to flow into the system.”

Naira depreciation persist as CBN injects $428m

Meanwhile the naira, last week, depreciated for the second consecutive week in the Investors and Exporters (I&E) window of the foreign exchange market.

Analysis showed that the naira fell by 40 kobo as the indicative exchange rate of the I&E window rose to N364.37 per dollar last week from N363.97 per dollar the previous week.

However, volume of dollars traded in the window (turnover) rose sharply by 118.5 percent to $2.1 billion last week from $966.2 million the previous week.

Naira also depreciated by 30 kobo in the parallel market as the exchange rate rose to N358.3 per dollar last week from N358 per dollar the previous week.

On its part, CBN ramped up its efforts to defend the naira, as it increased weekly foreign exchange intervention to $448 million last week from $210 million. In addition to the $210 million injected into the interbank foreign exchange market on Tuesday, the apex bank on Friday, injected $218.4 million through the retail Secondary Market Intervention Sales (SMIS).

The apex bank also injected CNY 18 million in the spot and short-tenored forwards segment of the inter-bank foreign exchange market.

According to the apex bank’s Director, Corporate Communications Department, Mr Isaac Okorafor, the intervention, like in previous exercises, was for requests in the agricultural and raw materials sectors, adding that the Chinese Yuan, on the other hand, was for Renminbi-denominated Letters of Credit.

Okorafor further expressed satisfaction over the stability of the foreign exchange which, according to him, was largely due to sustained intervention by the bank. He assured that the CBN Management would remain committed to ensuring that all the sectors of the forex market continue to enjoy access to the needed foreign exchange, stressing that the stability in the foreign exchange market continued to attract investors.

External reserves continue downward trend to $37.7bn

Meanwhile the nation’s external reserves continued its seven months slide as it fell to $37.725 billion last week Thursday.

Data from CBN showed that the reserves fell to $37.725 billion on Thursday, February 6, from $38.056 billion on Thursday, January 30. This translated to week-on-week (w/w) decline of $331 million, up by 68 percent from the w/w decline of $197 million recorded the previous week.

 

Vanguard