Liquidity tightening, N160b auction push interbank rates high

Forex reserves rise by $60m, parallel market rate settles at N322/$
Transactions on money market instruments at the interbank market were last week, dominated by high rates as the Central Bank of Nigeria (CBN) started the week with treasury bill auction worth N160 billion, which reduced liquidity from the financial system.

Consequently, the rates on Open Buy-Back (OBB) and Overnight instruments rose by 0.8 per cent from the previous trading session it closed at four per cent and 4.4 per cent respectively.

Specifically, the rates ended the week high with the OBB and overnight trending at 5.1 per cent and 5.6 per cent, rising by 1.9 per cent and two per cent when measured on week-on-week basis respectively.

Meanwhile, the foreign exchange (forex) reserves have risen by $59.9 million to $27.88 billion from $27.82 billion at the beginning of the month of March.

The reserves, which have been on a steady decline on the last one year, may have recorded 2.2 per cent increase on the back of foreign exchange currency measures and a renewed rally in the price of crude oil, although still at lower levels.

Mid-week, rates had inched higher as system liquidity remained low, with refund for unfulfilled bids at previous week’s CBN forex intervention auction offset by Deposit Money Bank’s provisioning for the week’s auction.

Both money market instruments again closed higher at 4.7 per cent and 5.2 per cent by midweek respectively and rising further to five per cent and 5.5 per cent by the end of Thursday’s trading session on low system liquidity.

Already, analysts at Afrinvest Securities Limited have projected further rise in the rates of the securities this week, barring unexpected mops ups and outflows.

“We expect money market rates to trend in a pattern dictated by liquidity dynamics as in recent weeks – with rates inching higher at the start of the week as DMBs provision for the CBN FX auction.

“However, rates should decline towards the end of the week due to an OMO maturity worth N45.5 billion expected to hit the system and a possible refund by the CBN to banks on Friday for unfulfilled bids at the forex auction,” they said.

While the Naira/Dollar exchange rate at the official segment of the forex market had remained stable at the range of N197/$1 and N199.10/$, the parallel market segment recorded a considerable amount of activity, starting the week at N330/$ and ending at N322/$.

Meanwhile, the controversies dogging the possible continuation of foreign exchange allocation for the payment of school fees abroad and medical tourism may not have been over.

According to a source at the weekend, President Muhammadu Buhari seems not to be favourably disposed to the idea of sustaining the allocation for the few, at the detriment of the economy.

The source said the President has weighed in on the controversy trailing the allocation for “foreign studies and other related demand for forex”, maintaining that the country cannot afford it.

The development is coming after the CBN clarified its position on the matter that it has not stopped the sales of forex for students studying abroad, which at the time stoked huge speculation and panic buying.