Cash refunds, N138b bills’ maturity crash interbank rates

CBN sells $313m two-month forward contract
The refund of unsuccessful bids for foreign exchange forwards contract and naira inflow from securities maturity worth N138.2 billion crashed interbank exchange rates on Friday.

In nearly two weeks, borrowing among banks has been costly, trending at between 20 per cent and a record high of 150 per cent.But on Friday, matured bills’ liquidity, which were redeemed a day earlier, hit the financial system, thereby raising the level of available cash.

Consequently, interbank lending rates fell further to 14 per cent and 14.5 per cent for Open Buy Back and Overnight on Friday respectively, from 14.8 per cent and 15.5 per cent on Thursday. On Monday and Tuesday, both rates had hit a high of 125 per cent and 128.5 per cent respectively.

Activities in the treasury bills market from the beginning of the week to the end was bearish, as sell sentiment was evident on the back of pressured financial system liquidity.

In the middle of the week, the apex bank offered N138.2 billion in 91-days, 182-days and 364-days treasury bills at a primary market auction.But in rare occurrence, the auction was undersubscribed by investors, against the backdrop of low system liquidity and consequently under allotted by N22.9 billion.

However, there is high expectation of improved inflow of N200 billion Federal Accounts Allocation meeting, which is expected to moderate rates from current levels.

Still, there is a high probability the CBN will react immediately by mopping up excess liquidity through Open Market Operations auctions in pursuance of its tightening objective.

Meanwhile, in a move similar to the special secondary market intervention auction of $4.1 billion in forwards commitment held in June to clear pent-up FX demands, the CBN sold $313 million worth of two months forwards at rates ranging from N310/$ to N350/$ in a special intervention auction last Friday.

The dollar forwards auction was targeted at clearing backlogs of FX demands from agriculture and agro-allied businesses, airlines and manufacturers amongst others.

The naira remained stable at the interbank market this week as it firmed 1.2 per cent week-on-week, strengthening to N304.75/$ on Friday from N307.77/$ in the previous week.

Nonetheless, analyst said the persistent interventions by the CBN with dollar sales at the interbank segment, as well as tight foreign inflows continues to pressure the external reserves as it currently sits at $23.9bn from $26.4bn as at first half of the year.

At the parallel market, the Naira/dollar exchange rate remained stable at N455/$ on all trading days of the week except Tuesday when it appreciated to N453/$1, as Travelex provide an alternative source of supply for travelers and licensed Bureau-De-Change operators.

The Central Bank of Nigeria will be settling $270.6m in open futures contracts due October 26, 2016 and there are expectations that the regulator will open a new October 2017 futures contract with a total value of $1 billion to replace the maturing instrument.

“We believe rate at the parallel market will be pressured in the weeks ahead on the back of the apex bank’s decision to maintain status-quo on the suspension of 19 banks from dollar sale to BDCs, suspension of Naira debit cards for FX transactions and Travelex’s inability to meet the rising foreign currency demand from BDC operators,” Afrinvest Securities said.