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N50b net outflow to tighten liquidity ahead of elections



Central Bank of Nigeria

The liquidity level in the system may have been projected to tighten further this week with an estimated net outflow of about N50 billion arising from the Open Market Operations (OMO) of the Central Bank of Nigeria (CBN) due Thursday.

Last week, there was no mop-up exercise due to assessed low levels of liquidity in the system, while this week, the apex bank is expected to redeem maturing N47.8 billion Treasury Bills as well as issue new instruments worth N97.8 billion, resulting to a net-outflow of N50 billion.

Already, CBN has concluded plans to convene its Monetary Policy Committee (MPC) today and tomorrow for the second time in the year, to assess macroeconomic developments and determine what further measures to aid the economy riddled with revenue shortage.

But analysts said with the effectiveness of monetary policy already reaching its limit, coupled with the tensed political atmosphere, CBN may not alter the monetary policy course in the meeting, as all policy rates are projected to be retained at current levels.

According to a report from a securities trading firm- Afrinvest, the mop-up exercise, coupled with no expectation of Federal Accounts Allocation Committee meetings, liquidity levels may remain tight in the week.

Consequently, there is a projection of sustained increased rates next week, supported by more demand for election funds.

Last week, the liquidity levels in the money market opened the week tight at N98 billion, stoking a sharp rise in Open Buy Back and Overnight rates to record 25 per cent and 26.8 per cent respectively.

The liquidity however, improved on Tuesday to N125.9 billion, with the Standing Lending Facility (SLF) accessed by banks from the CBN Discount window reduced to N45 billion as rates in the money market also inched low- 15 per cent for OBB and 15.9 per cent Overnight.

The rates rebounded on Wednesday with liquidity level tightened to N76.1 billion, as both rates scaled higher by 50bps and 58bps respectively.

Also, maturing Treasury Bills worth N167.2 billion, which hit the system that same day, were promptly mopped up via a re-issuance, thus cancelling the effect of the initial liquidity injection.

On Thursday, both rates settled at 13.3 per cent and 13.8 per cent in that order, as higher liquidity opening balance of N123 billion greeted the market, while the week ended with a more lower rates of 10.0 per cent and 10.8 per cent for OBB and Overnight respectively.

At the foreign exchange (forex) market segment, the naira began the week and ended the day at an all week low of N199.10/$ on the back of liquidity provided through dollar auction sales by the oil companies.

Specifically, while Chevron sold $30.4 million, Shell however, sold an undisclosed amount to finance local operations, even as deposit money banks still scrambled to meet customers’ demands.

On Tuesday, the Naira depreciated by five kobo to N199.15/$; Wednesday, it declined further by another two kobo and closed at a week high of N199.17/$ but pared losses on Thursday to close at N199.15/$.

At the end of the week, the currency closed flat after settling at N199/$ at the close of business, with CBN’s intervention to curtail further losses in the value of the naira.

Afrinvest report added: “Pressure on external reserves eased, depreciating marginally by 0.9 per cent week-on-week. Current level of the Reserves settled at $30.1 billion compared to $30.4 billion last week. We anticipate further pressure to ensue in the foreign exchange market ahead of the general elections.”

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