Source: https://www.vanguardngr.com/2017/12/cost-funds-nosedives-cbn-halts-liquidity-mop-operations/

COST of funds in the interbank
money market fell sharply last
week, as the Central Bank of
Nigeria (CBN), for the first time
this year, suspended its weekly
liquidity mop-up operations
signalling relaxation of its tight
money policy. Average short
term interest rates nose-dived
by 2, 174 basis points (bpts),
while interest rate on
Collateralised lending fell by
2,066 bpts.
Since the beginning of the
year, the CBN had been issuing
secondary market treasury bills
(TBs) also known as Open
Market Operations (OMO) bills
to mop-up excess liquidity in
the interbank money market.
Aside the regular OMO TBs
which are issued based on a
quarterly issuance calendar,
the apex bank also issues
special OMO bills worth N100
billion occassionally, especially
in anticipation of huge inflow
of funds into the market.
The Central Bank of Nigeria,
CBN, headquaters, Abuja
However, contrary to
expectation and in spite of
N110 billion inflow from
matured TBs, and expected
inflow from the N532.8 billion
statutory allocation disbursed
by the Federal Allocation
Accounts Committee (FAAC), the
CBN did not issue any OMO TBs
last week.
This move, which was
described by analysts at Lagos
based Afrinvest Plc, as
‘unprecedented’, fuels
anticipation of expansionary
monetary policy stance as
indicated by the CBN Governor,
Mr. Godwin Emefiele, in his
keynote address at the annual
Bankers Nite of the Chartered
Institute of Bankers (CIBN) in
Lagos, last month.
Emefiele had stated: “Monetary
policy stance could change
when the underlying
fundamentals become
supportive. If the pace of
disinûation becomes adequate
and we see inûation at
predicted levels, I am very
optimistic that MPC may begin
to see strong justification for
an easing of monetary policy,
which may further accelerate
the recovery process.”
With no OMO bills issued to
mop-up liquidity, interbank
money market liquidity, which
had dropped to deficit of
N92.8 billion on Tuesday from
surplus of N183.9 billion the
previous week due to outflow
for dollar purchase, revived to
N78 billion surplus at the close
of last week.
As a result, cost of funds in the
interbank money market,
which closed the previous
week in double digits, fell
sharply, with average short
term interest rates falling by 2,
174 basis points (bpts).
Data from the Financial Market
Dealers Quote showed that
interest rate on Collateralised
lending fell by 2,066 bpts to
5.17 percent from 25.83
percent the previous week.
Similarly, interest rate on
Overnight lending dropped by
2,283 to 6.25 percent from
29.08 percent.
However, analysts were
uncertain if this trend will
persist this week. While the
market expects inflow of
N218.1 billion from maturing
TBs and the statutory
allocation funds, the impact on
cost of funds will be
moderated as the CBN is
expected to roll-over the
maturing TBs while the Debt
Management Office (DMO) will
also issue N100 billion worth
of FGN Bonds.
Investors inject $3bn in I&E in
4 weeks
Financial Vanguard
investigations revealed that
investors have injected $3
billion into the Investors and
Exporters (I&E) window in the
four weeks reflecting soaring
confidence in the seven
months window.
Analysis of daily transaction
volume in the window from
Monday, November 13 to last
week Friday, shows increase in
weekly volumes of dollars
traded. From $674.3 million
dollars in the week ending
Friday November 17, the
dollars traded rose to $727.9
million for the week ending
November 24, indicating
increase of 7.9 percent. For the
week ending November 30, the
volume of dollars traded rose
further by 4.3percent to $759.2
million and further by 18.6
percent to $900.5 million for
last week.
The upsurge in dollar inflow,
however, did not impact
positively on the naira, as it
depreciated by one kobo
against the dollar within the
four week period. According to
the FMDA, the indicative
exchange rate of the naira for
the window rose to N360.41
per dollar last week Friday
from N360.4 per dollar on
Friday November 10.
However the naira appreciated
in the window last week by 24
kobo, as the indicative
exchange rate dropped from
N360.65 the previous week to
N360.41 last week.
Meanwhile, the CBN sustained
its weekly intervention in
interbank foreign exchange
market by injecting N210
million on Tuesday.
Announcing the injection in a
statement, Acting Director
Corporate Communications
Department, CBN, Mr. Isaac
Okoroafor, said: “The sum of
$100million was offered to the
wholesale segment, while the
Small and Medium Enterprises
(SMEs) segment got an
allocation of $55 million. The
invisibles segment (i.e. tuition
fees, medical payments and
Basic Travel Allowance (BTA),
among others) was also
allocated $55 million.”

cc FOD