Experts averred that the scarcity of funds that led cost of funds to rise by over 1000 basis points in the interbank money market last week is expected to decrease this week spanning through preceding weeks in August, 2019 due to inflow of N632 billion from matured Treasury Bills (TB) and statutory allocation to states and local governments.
This is glaring due to the fact that the interbank money market experienced a sharp decline in liquidity last week of July 2019, aggravated by an outflow of N161 billion for foreign exchange purchases and FGN Bond auction held by the Debt Management Office (DMO).
Also, the outflow cancelled out the impact of N120 billion inflow comprising N90 billion from matured Treasury Bills (TBs) and N30 billion from coupon payment on the 30-year FGN bond. As a result, the market ended with negative liquidity of N90 billion, which caused the average short term cost of funds to rise week-on-week by 1,025 basis points (bpts).
Most importantly, data obtained from the Financial Markets Dealers Quotations (FMDQ) showed that interest rate of Collateralized otherwise referred to as Open Buy Back (OBB) lending rose by 993 bpts to 21.86 per cent last week from 11.93 per cent the previous week.
Similarly, the interest rate on Overnight lending rose by 1,057 per cent to 23.21 per cent last week from 12.64 per cent the previous week in July 2019.
Relative to the above, the interest rate on Overnight lending rose by 1,057 per cent to 23.21 per cent last week from 12.64 per cent the previous week.
Analysts were, however, hopeful that this trend will be reversed this week as the inflow of N6232.9 billion, comprising N311.9 billion from maturing TBs and N321 billion from the statutory allocation, is expected to cancel out the effect of N223.23 billion outflow for TB purchase, and hence decline in cost of funds.
While making this projection, analysts at Cowry Assets Management (CAM) Limited said: “In the new week, CBN will auction T-Bills worth N223.23 billion, viz: 91-day bills worth N28.02 billion, 182-day bills worth N58.68 billion and 364-day bills worth N136.52 billion.
We expect their stop rates to decrease marginally due to increase demand amid a boost in system liquidity which, in addition to maturing T-bills worth N88.68 billion and the effect of Federation Accounts Allocation Committee (FAAC) inflows of N762.5 billion, are also expected to result in decline in Nigeria Interbank Offered Rate (NIBOR)”.
