Mixed fortunes await operators over N300 billion market transactions this week

A combination of scheduled monetary policy actions this week, projected at over N300 billion, would lead to mixed fortunes at the interbank market, as rates respond to liquidity dynamics.

Though early trading in the week would be marked by low rates due to high liquidity, there would be volatile sessions in the middle of the week as the banks begin to make provisions for the weekly foreign exchange auction.
However, the interbank rates would also decline towards the end of the week with an expected maturity of treasury bill worth N234.4 billion hitting the system by Thursday.

Last week, the financial market had opened with a high level liquidity in excess of N900 billion due to refund of provisions by banks for CBN’s foreign exchange intervention.

Despite liquidity mop up of N113.7 billion at a marginal rate of 7.8 per cent earlier in the week, interbank rates remained stable as the Open Buy Back (OBB) and Overnight rates moderated four basis points (bps) and 17bps from the previous week’s record to close at 0.7 per cent and one per cent respectively.

However, liquidity levels declined on Tuesday due to provisioning by banks for the CBN foreign exchange intervention auction, which spiked rates to 5.8 per cent for OBB and six per cent for Overnight.

The rates also inched higher as the CBN issued N50 billion in excess of its maturing bills at the Primary Market Auction.

The volatility had moderated at money market at the weekend as system liquidity increased on the back of refund of provisions made by banks for foreign exchange intervention, dropping OBB rate to 0.6 per cent and Overnight to one per cent.

In the treasury bills market, some sell pressures were observed in short term maturities last week due to the OMO bills auctioned by the CBN, pushing average rate across tenors marginally higher to 6.1 per cent.

However, due to tighter liquidity in the financial system, rates spiked up to an average of 6.5 per cent by Wednesday. Last week, CBN auctioned a total of N434.7 billion, made up of 91-days-, 182-day and 364-day tenors and were issued at stop rates of five per cent, eight per cent and 9.5 per cent respectively.

Meanwhile, activities in the foreign exchange market last week, remained stable as Naira/Dollar exchange rate at the as stable at official and interbank market trended at N197/$1 and N199.1/$1 respectively.

Against the scarcity of FX and the restrictions in the official and interbank segments, the spread between the interbank and the BDC/parallel segments of the foreign exchange markets have stayed high at the range of N105.90 – N106.00, as the currency traded within a band of N305/$1 and N306/$1 at the BDC and Parallel markets last week.

“However, against the Fiscal plan to borrow $3.5 billion from multi-lateral sources to finance the 2016 budget deficit, an adjustment would likely be made before the 2016 budget is passed for more flexibility in foreign exchange management,” analysts at Afrinvest Securities Limited, said.