Interbank rates fall as market liquidity rises

12 October 2015, Lagos – The money market remained awash with liquidity last week as the Nigerian Interbank Offered Rates (NIBOR) dropped to an average of 0.75 per cent on Friday, following the inflow of cash into the banking system. The total value of cash that hit the banking system during the week was put at N922.9 billion.


*Godwin Emefiele, CBN Governor.

Godwin Emefiele, CBN Governor

The significant rise in system liquidity was largely buoyed by the Central Bank of Nigeria’s (CBN’s) special intervention that took place last week. Specifically, the cash reserves requirement (CRR) credit of N740 billion that hit the banking system as well as payment for matured treasury bills of about N137 billion, also expanded market liquidity to its highest level for the year.

Liquidity opening balance on the first trading day of the week was N314.5 billion, which resulted in 1.2 per cent and 1.3 per cent decline in open buy back(OBB) and overnight rates from the previous close to settle at three per cent and 3.6 per cent respectively last Monday.

According to analysts at Afrinvest Securities Limited, performance of the treasury bills market last week was very bullish as a lot of buying interest was noticed across all tenor all through the week. The bullish performance was attributable to the robust liquidity levels in the market during the week.

As a result, average yield across all instruments declined 2.5 per cent to 12.5 per cent week-on-week.
This week, analysts anticipated that the central bank would carry out a substantial mop up exercise given the level of liquidity in the system. More so, an open market operations (OMO) maturity worth N137.1 billion is expected to hit the system this Thursday.

Forex Market

In the Interbank market this week, the naira opened at N199.08/$1 but returned to N199.10/ $1 on Tuesday and was sustained all through the week. Pressure however continued to mount at the parallel market, as the naira depreciated from N224.00/ $1 to N225.00/$1 during the week.

The depreciation in the value of the naira has continually been attributed to insufficient supply of the greenback in the market.  During the week, the central bank continued to defend its stance on the naira. CBN Governor, Mr. Godwin Emefiele said that the naira is “appropriately priced”, adding that the central bank does not plan any adjustments in the currency for now. Emefiele also stated that restrictions put in place in June to conserve foreign exchange reserves and support the naira were working.

The CBN had restricted funding for 41 items in its official forex market in a bid to encourage local production and to conserve the nation’s forex reserves.

The controls are necessary to limit demand for dollars, Emefiele added. The central bank had little choice in imposing the curbs in order to preserve foreign-currency reserves, he said.

This view was also further buttressed by the Vice president at a meeting of the Manufacturing Association of Nigeria last week, where he noted that the federal government will consider easing some of the restrictions in order to reduce the pressures suffered by manufacturers.

Bond Market Review

Following the JP Morgan GBI-EM index rebalancing, which took place at the end of the month of September arising from the decision to phase out the Nigerian bonds from the index, the bond market was very bullish during the week. Domestic investors have continued to increase their stake in the local bond market and the robust liquidity levels in the market has given domestic investors the leeway to further participate in the market following the exit of some foreign investors.

This week, domestic investors are expected to remain very active in the market given the sustained bearish state of the equities market for which the fixed income market is considered a safe haven.  The Debt Management Office (DMO) is set to auction a total of N80 billion in FEB 2020 and MAR 2024 instruments this Wednesday.

“We expect this auction to remain largely successful at the prevailing market yields given the increased appetite of local fund managers for bonds amidst capital market volatility,” Afrinvest stated.


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