Harmonised CRR to drive market rates this week
The decision, which was partly informed by the need to check moral hazard by private market participants given the current discriminatory CRR previously at 75 per cent and 20 per cent for public and private sectors’ deposits respectively, has been projected to mobilise huge funds for lending soonest.
Afrinvest Securities Limited, in a note to The Guardian, had said: “Based on our estimation using the CBN February 2015 data, the implied CRR for public and private sectors’ deposits stood at 35 per cent.
“As at February, public and private sectors’ deposits settled at N3.6 trillion (27.3 per cent) and N9.6 trillion (72.7 per cent) respectively and by implication, the CBN unleashed the strings on deposits in the banking system, increasing available deposits by approximately N528 billion.”
The securities company noted that the additional liquidity into the system may however, be channelled to the fixed income market, given the current attractive yields, which would in turn, push down yields within the short term.
Meanwhile, liquidity levels within the money market last week were relatively low compared to that of the previous week, with average liquidity opening balance at N133.4 billion relative to N221 billion in the previous week.
Consequently, the average Open Buy- Back (OBB) and Overnight rates for the week were 41.7 per cent (OBB) and 44.3 per cent (Overnight).
Specifically, on Monday, the low liquidity opening balance kept rates at 26.6 per cent for the OBB and 29 per cent for the Overnight Calls.
On Tuesday however, money market rates surged to 41.7 per cent (OBB) and 44.3 per cent (Overnight) as liquidity balance declined to N100.7 billion, while a resurgence in the balance on Wednesday, to N190.3 billion hit money market rates down to 10.2 per cent for the OBB and 10.7 per cent for the Overnight rate.
Despite the monthly CRR debit from the system on Thursday, money market rates remained at the same level (10.2 per cent and 10.7 per cent respectively), especially as Treasury Bills worth N110.9 billion matured into the system.
At the close of the week, liquidity opening balance appreciated to N152.3 billion, while money market rates dropped to 9.7 per cent for the OBB and 10 per cent for the Overnight rate.
The Foreign Exchange rate at the Interbank market also remained steady at N199.10/$ all through the week.
The rate, which had remained stable at N199.10/$ since April 27, 2015, has been attributed to the continued market intervention by CBN, which has kept market rate fixed at N197/$.
However, at the Bureau De Change segment, rates stay relatively unstable, but within a tight range of N220/$ and N222/$.
At the beginning of last week, rates stayed at N222/$, but appreciated by N2 on Wednesday to settle at N220/$, while on Thursday, exchange rate in this segment pared the previous day’s gain with N1 to close at N221/$.
“Although CRR on private and public sector deposit was harmonized at 31 per cent, we expect exchange rate to remain calm in the week ahead, while we await policy directions of the new government to shape near term outlook of exchange rate.
“We expect yields on benchmark instruments to trade sideways this week, as debates on whether the new CRR policy is aimed at further mopping up liquidity or increasing it are still on-going,” the company said.
Following the policy decisions on CRR, the average yields increased one basis points to 14.6 per cent on Wednesday, basically as some banks sought to raise cash for CRR debit in line with with the new rule.
Participants in the bond auction in the middle of the week were perceived to have increased activities due to expectations of a reduction in CRR on public sector deposits, which may have led to higher yields in subsequent sessions.
Although the bond market participants’ expectations of CRR reduction were not let down, the average yields
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