The aggressive liquidity mop up operation conducted by the Central Bank of Nigeria (CBN) last week is expected to persist this week as inflow of N330 billion boosts interbank money market liquidity. In a bid to tackle excess liquidity in the interbank money market, worsened last week by inflow of N290 billion, the apex bank mopped up N454 billion from the market by selling secondary market (Open Market Operations, OMO) treasury bills.
A financial analysis revealed that the N50 billion worth of 119-Day OMO bills offered by the CBN was largely undersubscribed as subscription and amount sold stood at N2.9 billion with stop rate of 11.05 percent.
But the N200 billion worth of 231-Day OMO bills offered by the CBN was hugely oversubscribed as the subscription and amount sold stood at N451.2 billion while the stop rate was 12.15 percent.
The liquidity mop-up, however, triggered a 6,600 basis points (bpts) increase in short term cost of funds. According to the FMDQ, interest rate on Collateralized (Open Buy Back, OBB) lending shot up by 6,217 bpts to 65 percent on Friday from 2.83 percent the previous week.
Similarly, interest rate on Overnight lending rose by 7,009 bpts to 73.42 percent on Friday from 3.33 percent the previous week.
This week, the market will receive inflow of N330 billion from matured TBs, which would more than offset the impact of outflow of N33.84 billion through primary market TBs auction to be conducted by the CBN this week.
To address the resulting excess liquidity, the CBN may conduct liquidity mop up via OMO TB issue. Hence the direction of cost of funds this week hangs in the level of OMO TB issue by the CBN.
