N967bn inflow to revive interbank market liquidity

THE interbank money market will this week receive liquidity boost of N966 billion inflow from statutory allocation funds and payment of matured treasury bills (TBs). The expected inflow will revive market liquidity, which fell drastically last week by 92 per cent to N12 billion on Friday from N177.48 billion on Monday.

The decline in liquidity was occasioned by outflow of N337.32 billion through TBs as well as outflow to fund participation in dollar sales by the Central Bank of Nigeria (CBN). These outflows cancelled the impact of N152 billion inflow from payment of matured TBs
This development caused cost of funds to shot up between Monday and Tuesday before moderating downward in the second half of the week. Data from the Financial Market Dealers Quote (FMDQ) showed the interest rate on Collateralised lending rose from 14 per cent the previous week to 18.33 per cent on Tuesday but dropped to 5.0 per cent at the close of business on Friday. Similarly interest rate on Overnight lending rose from 14.92 per cent the previous week to 19.17 per cent on Tuesday but dropped to 5.83 per cent at the end of last week.

Vanguard investigations revealed that the sharp fall in cost of funds at the end of the week was majorly influenced by expectation of N967 billion liquidity inflow this week.

This comprises statutory allocation funds of N652.23 billion approved last week by the Federation Accounts Allocation Committee (FAAC) for distribution to the three tiers of government and payment of matured TBs worth N314.56 billion.

The matured TBs comprises: 91-day bills worth N29.143billion, 182-day bills worth N80 billion, 364-day bills worth N120 billion, 143-day bills worth N2.79 billion and 181-day bills worth N82.62 billion.These liquidity inflows are expected to cancel out the effect of expected outflow of N229.14 billion from TB sales by the CBN.

Naira to depreciate to N370 in I&E window
The depreciation of the naira in the I&E window is expected to persist this week, with the indicative exchange rate hitting the N370 per dollar mark.
Vanguard investigations revealed that the naira has depreciated for two consecutive weeks in the window. Last week, it depreciated by N1.23 as the indicative exchange rate rose to N367.60 per dollar from N366.37 per dollar the previous week. Two weeks ago the naira depreciated by N3.54 in the window, hence the local currency has depreciated by N4.37 against the dollar in two weeks in the I&E window.

Meanwhile the volume of dollars traded in the window shot up by 304 per cent last week to $1.04 billion from $257 million the previous week.
Vanguard investigations revealed that the naira depreciation in the I&E window is been driven by a combination of two factors. The first factor is demand by investors and exporters for what they consider a fair exchange rate   and increased demand for dollars in the market. Except the CBN intervenes, this trend is expected to persist this week and thus further push up the indicative exchange rate for the window.

CBN sells $462m in interbank
Meanwhile the CBN stepped up its intervention in the foreign exchange market last week by selling $462 million in the interbank segment.
Confirming this development on Friday, Acting Director of the Corporate Communications Department, Mr. Isaac Okorafor said: “A breakdown of the forex intervention indicates that the Retail Secondary Market Intervention Sales (SMIS) received $267.33 million; wholesale interventions received $100 million; while the $50 million was allocated to the Small and Medium Enterprises (SMEs) forex window. Those requiring foreign exchange for Business/Personal Travel Allowances, tuition and medical fees, among others, got a total allocation of $45 million.”

Okorafor said the leadership of the CBN was impressed by the positive impact its current foreign exchange management was having on the manufacturing sector, agriculture and economic activities in general across the country.

While reiterating that the CBN management was also encouraged by growth in the non-oil sector, particularly agriculture, he noted that the apex bank would not relent in its efforts at sustaining stability in the inter-bank forex market as well as ensuring the convergence between the exchange rates at the Nigeria Autonomous Foreign Exchange (NAFEX) and the Bureau de Change segments of the market.

In addition to the above, the CBN during the week sustained its intervention in the bureaux de change segment by selling $40,000 to each of the 3,145 BDCs across the country, translating into $125.8 million supply.
This translated to reduced demand pressure in the parallel market, with the market exchange rate falling to N365 per dollar at the close of business on Friday from N366 per dollar the previous week, indicating N1 appreciation for the dollar.

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