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N367bn inflow to lift interbank liquidity as DMO sells bonds - VANGUARD
Naira appreciates, external reserves declines to $36.5bn
By Babajide Komolafe
The Interbank money market will enjoy liquidity boost of N367.4 billion from matured treasury bills leading to further moderation in cost of funds. Last week, cost of funds closed lower compared to the previous week, in spite of sharp decline in the volume of excess cash (liquidity) in the market.
Financial Vanguard investigations showed that market liquidity fell by 64 percent to N139.2 billion at the close of business on Thursday from N382.4 billion Friday previous week. Among other factors, the decline was caused by outflow of N60 billion due to auction of secondary market (Open Market Operations, OMO) Treasury Bills (TBs) by the Central Bank of Nigeria (CBN).
However, cost of funds moderated downward at the end of the week owing to some cash inflows. As a result, interest rate on collateralised (Open Buy Back, OBB) lending fell by 677 basis points (bpts) to 8.33 percent on Thursday from 15.6 percent previous week. Similarly, interest rate on Overnight Lending dropped 687 bpts to 9.83 percent from 16.7 percent the previous week. Analysts projected that this trend will persist this week, due to inflow of N367.4 billion expected from maturing OMO and primary market TBs.
The inflow comprises of N352.8 billion from maturing OMO bills and N14.6 billion from maturing primary TBs. According to analysts at Cowry Assets Management Limited, "In the new week, TBs worth N367.44 billion will mature from the primary market which will exceed TBs worth N14.61 billion to be auctioned by CBN through the primary market; viz: 91-day bills worth N2 billion, 182-day bills worth N2 billion and 364-day bills worth N10.61billion.
"Hence, we expect NIBOR (Nigeria Interbank Offer Rate) along with the stop rates of the issuances to decline amid financial system liquidity ease." Making a similar projection, analysts at Afrinvest Securities Limited similarly said: "We expect maturities of OMO and TBs instruments worth | 352.8 billion and | 90.9 million respectively to keep money market rates low in the coming week."
DMO to sell N150bn FGN bond at lower rate Meanwhile the Debt Management Office (DMO) will this week auction N150 billion worth of Federal Government of Nigeria, FGN, bonds to investors. The bond offering comprises 12.75% FGN April 2023 (5-Yr Re-opening) worth N40 billion, 15-years 12.50% FGN April 2035 (15-Yr Re-opening) worth N50 billion and 12.98% FGN April 2050 (30-Yr Re-opening) worth N60 billion. The bond auction is expected to record oversubscription with lower marginal rates, with further decline in the marginal (stop) rates.
Investigation revealed that the DMO has cut marginal rates on FGN bonds by average of 63 basis points between March and May. Owing to oversubscription, the DMO reduced the marginal rate on the 5-year bond by 80 (bpts) to 9.2 percent in May from 10 percent in March. It also slashed the rates on the 15-year and 30-year bonds by 80bpts and 30 bpts respectively to 11.7 percent and 12.6 percent in May from 12.5 and 12.9 percent in March.
Naira appreciates, external reserves declines
On the foreign exchange scene, the naira appreciated in the Investors and Exporters (I&E) window last week even as the nation's external reserves declined further to $36.477 billion Data from FMDQ showed that the naira appreciated by 75 kobo in the I&E window as the indicative exchange rate dropped to N385.75 per dollar from N386.5 per dollar the previous week.
The naira however remained stable at N448 per dollar in the parallel market. However, the nation's external reserves recorded the second consecutive week-on-week (w/w) decline since April 29th. Data from the CBN showed that the reserves fell to $36.477 billion on Wednesday June 10th from $36.577 billion on Wednesday June 3rd, indicating $100 million w/w decline.
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