…Naira appreciates as external reserves decline to $38.289bn
By Babajide Komolafe
THE interbank money market will this week receive liquidity boost of N479.9 billion from matured treasury bills, hence expectation of decline in cost of funds.
2020: Money market instruments to account for chunk of FPI – FSDH Research
Last week, cost of funds shot up as the CBN mopped up N411 billion through OMO TBs.
The outflow cancelled the positive impact of N423.2 billion inflow from matured TBs, causing average interbank short term interest rate to rise by 750 basis points (bpts) during the week.
Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 735 bpts to 9.71 percent last week from 2.36 percent the previous week. Similarly, interest rate on Overnight lending rose by 764 bpts to 10.71 percent last week from 3.07 percent the previous week.
Analysts, however, opined that this trend will be reversed this week, as the interbank money market receives liquidity inflow of N479.9 billion from matured TBs.
In their projections for this week, analysts at Afrinvest Limited said: “We anticipate N479.7 billion maturities (OMO: N434.7 billion; T-bills: N45.0 billion) to hit the system, as such, we expect money market rates to trend lower in the week ahead.
“Meanwhile, we expect the CBN to continue with its liquidity mop-up via OMO sales. We do not see a change in the yield direction on the back of continued buy interest. The low yield should help sustain investor interest in equities as the search for higher return toughens.”
Analysts at Cowry Assets Management Limited also stated: “We expect liquidity ease in the financial system to be sustained with resultant moderation in NIBOR. We also expect the stop rates to decline marginally amid increasing demand for the instruments.”
Making a similar projection, analysts at Cordros Securities said: “In the coming week, OMO maturities (NGN405.39 billion) will bolster system liquidity, and so, barring any liquidity mop-up activities by the CBN, we expect a contraction in the overnight lending rate”.
Naira appreciates as external reserves decline to $38.289bn
The seven weeks declining trend of the naira against the dollar was halted last week, as it appreciated in the parallel market and in the Investors and Exporters (I&E) window.
While the naira appreciated by N2.38 in the I&E window, it appreciated by N1 in the parallel market.
Data from FMDQ showed that the indicative exchange rate of the I&E window, which had been on the upward trend since November 15, 2019, dropped to N362.6 per dollar last week from N364.98 per dollar the previous week, translating to N2.38 appreciation for the naira.
Data by naijabdcs.com, the exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON), showed that the parallel market exchange rate dropped to N361 per dollar last week from N362 per dollar the previous week, translating to N1 appreciation for the naira.
The naira appreciation was prompted by resumptions of dollar sales to the interbank foreign exchange market and to bureaux de change (BDCs) in continuation of its intervention in the forex market to defend the naira.
During the week, the CBN resumed its weekly injection of $210 into the interbank forex market comprising $100 million allocated to wholesale segment, while the SME window and Invisibles each received $55 million.
N896bn inflow triggers speculation on excess liquidity mop-up
However, the declining trend in the nation’s external reserves persisted last week. Data from the CBN showed that the reserves dropped to $38.289 billion on Thursday, January 9, 2020, from $38.535 billion on Thursday January 2, translating to week-on-week decline of $246 million.