The delay in the release of funds to the three tiers of government by the? Federation Account Allocation Committee (FAAC) has further worsened the liquidity situation in the financial system, further? increasing inter-bank lending rates last week.
This is a further pressure on rates already spiked by systematic tightening of the money market by the Central Bank of Nigeria (CBN) which has continued to issue treasury bills to mop up liquidity from the system in response to rising inflation.
It has almost become customary for the FAAC to release funds to the three tiers of government late every month, thereby leading to shortfall in money supply.
Inter-bank rate is the rate at which banks lend money amongst themselves. When that rate is up, it imminently means that the rate at which banks lend money to the system will invariably increase as well, thus sending lending rate to the economy higher.
“The money market was tight as a result of the withdrawals from the system via the government securities market and foreign exchange auction by the CBN during the week and the non-release of the monthly statutory allocation for the month of May. Consequently, inter-bank rates closed higher to end the week”, said FSDH, a research firm weekend.
Available data showed that 7-day Nigerian Inter-Bank Offer Rate (NIBOR) closed the week at 15.29 per cent, a 58 basis points increase from the previous week’s figure of 14.71 per cent, while the 90-day NIBOR closed the week at 16.25 per cent, a 46 basis points increase from the previous week’s figure of 15.79 per cent.
At the 91-day Treasury Bill (TB) auction, a total of N32.06 billion worth of securities was offered and sold to competitive bidders, while a total of N9.51 billion was sold to non-competitive bidders, bringing total offer and sale to N41.57 billion. The bill was 306.04 per cent subscribed as N98.11 billion worth of bid was received from competitive bid. The bill was issued at a discount rate of 13.19 per cent. A total of N32.06 billion worth of matured bills was repaid into the system, leading to a net outflow of N9.51 billion from this segment of the market.
At the 182-day TB auction, a total of N55 billion worth of securities was offered; a total of N50 billion was sold to competitive bidders, while N36.11 billion was sold to non-competitive bidders, bringing total offer and sale to N86.11 billion. The bill was 264.26 per cent subscribed as N145.34 billion worth of bid was received from competitive bidders. The bill was issued at a discount rate of 13.871 per cent. A total of N45 billion worth of matured bills was repaid into the system, leading to a net outflow of N41.11 billion from this segment of the market.
At the 364-day TB auction, a total of N60 billion worth of securities was offered, a total of N65.00 billion was sold to competitive bidders, while N330.70 million was sold to non-competitive bidders, bringing total offer and sale to N65.33 billion. The bill was 449.98 per cent subscribed as N269.99 billion worth of bid was received from competitive bidders. The bill was issued at a discount rate of 13.947 per cent. A total of N50.00 billion worth of matured bills was repaid into the system, leading to a net outflow of N15.33 billion from this segment of the market.
At the Open Market Operations (OMOs) and Repurchase (REPOs) transactions held during the week, there was a total inflow of about N130.05 billion into the system, while there was a withdrawal of about N51.64 billion from the system. This brought about a net outflow of N78.41 billion from this segment of the market. The transaction was traded at a discount rate of 13.30 per cent.
At the foreign exchange auction held on Monday, May 14, 2012, the CBN offered a total of $150 million. The total sale was the same as the amount offered. At the foreign exchange auction held on Wednesday, May 16, 2012 the CBN offered a total of $200 million. The total sale was also the same as the amount offered. In all a total of $350 million was offered and sold by the CBN during the week.
Cumulatively, there was a net outflow of N36.38 billion from the system through the government securities and foreign exchange auctions during the week.
The value of naira appreciated in the official market segment of the foreign exchange market during the week, while it dropped in both the parallel and the Inter-bank market.
At the official market, the naira appreciated by five kobo to close at N155.70/$, compared with the previous week’s rate of N155.75/$. At the parallel market, it depreciated by 160 kobo to close at N160.20/$, compared with the previous week’s rate of N158.60/$, and at the Inter-bank market, it depreciated by 82 kobo to close at N158.60/$, compared with the previous weeks rate of N157.78/$.
The FSDH said it expects government securities maturities of about N335.33 billion (91-day TB – N44.65 billion, 182 day TB – N40.68 billion and FGN Bonds – N250 billion) to hit the system in the coming week.
In addition, FAAC payment of about N400 billion is expected to hit the market in the coming week.
The Monetary Policy Committee (MPC) of the CBN is expected to meet? today and and tomorrow to decide on the Monetary Policy Rate (MPR). The outcome of the meeting would determine the direction of rates in the coming weeks.
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