Money market liquidity hits N500b as CBN mops up cash

By Collins Nweze 

Money market rates have responded to the financial system liquidity, which has remained above N500 billion, following mop-up by the Central Bank of Nigeria (CBN).

As with other weeks, investors’ appetite for Open Market Operations (OMO) securities, especially the long-dated maturities, are noticed in the subscription report released by Afrinvest Limited, an investment and research firm.

The Open Buy Back (OBB) and Overnight (OVN) rates have trended lower week-on-week, reflecting an improvement in system liquidity, which opened at N501.4 billion as OBB and OVN rates fell to 3.3 per cent and 3.5 per cent, down by 0.4 percentage points (ppt) and 0.5ppt from last week’s close.

In the Treasury Bills market, performance was largely flattish as average rate across benchmark tenors trended higher, albeit marginally on three of five trading sessions save last week. The bearish started the week, with an average rate rising from 2bps to 13.1 per cent. It was reversed on Tuesday following four basis points (bps) decline in average yield; but rose by three bps mid-week in the absence of a Primary Market Auction and stayed flattish till the end of the week.

Analysts anticipate a largely bullish performance in the Treasury Bills Market this week, sequel to the reduction in the amount to be rolled over in line with the planned reduction and substitution of expensive domestic short- term debt with cheaper long term foreign debt by the Federal Government.

A total of N116.9 billion across the 91-day, 182-day and 364-day instruments will be maturing while only N58.4 billion is scheduled to be rolled over.

On the foreign exchange market, the improving global demand on the back of optimistic growth outlook, sustained OPEC production cut deal and Saudi Arabia’s vow to cut more oil output, propped global oil prices during the week as Brent Crude gained 7.5 per cent week-on-week to close at $72.28/billion.

This positive development continues to strengthen the Central Bank of Nigeria’s (CBN’s) external reserves buffer – which during the week sustained the recent momentum of accretion, with the gross level reported at $46.7 billion as at (09/04/2018) – and its capacity to uphold the level of forex intervention needed to support the local currency.

Consequently, the CBN in line with trend continued its weekly forex intervention sales, offering $210 million via the Wholesale Secondary Market Intervention Sales (SMIS); in its commitment to sustain liquidity levels and maintain stability in forex rate across all segments of the market. As a result, the naira was stable during the week.

The CBN’s spot rate opened the week at N305.60/$1 and appreciated to N305.55/$1 on Monday but maintained this rate till the end of the week.

At the parallel market, rates started the week at N362.00/$1 but margially weakened by N1 to close at N363/$1 At the Investors and Exporters’ (I&E) Window, opened the week flat at N360/$1 and closed at the same rate by week-end. Activity level in the Investors & Exporters forex window improved, following a 6.8 per cent increase in turnover to $1.1 billion from $1 billion traded in the previous week.

Also, the local bond market was bullish this week as the average yield declined week-on-week consequent on investors’ reaction to the monetary policy rate retention and a moderation in headline inflation rate to 13.34 per cent from 14.33 per cent in February.

Accordingly, the average yield across tenors fell six bps on Monday to close at 13.6 per cent due to buying interest across tenors, specifically in short and medium dated instruments. The downward trend in yield continued till mid-week as the average yield across tenors further moderated to 13.6 per cent (5bps lower) on Tuesday and 6bps lower on Wednesday before settling at 13.5 per cent on Thursday. Average yield closed the week at 13.5 per cent on Friday, recording a 23bps decline W-o-W.

Based on our near term outlook, we expect the bullish performance to be sustained in the moderating yield environment as investors retain interest in longer dated maturities.