Posted by By Linda Elueme on
The money market segment of the nation's financial system experienced liquidity squeeze Friday following the Nigeria National Petroleum Corporation (NNPC) withdrawal of the N58 billion accumulated credit it gave major oil marketers for product supply and funding of second tranche of the Federal Government bond.
The money market segment of the nation's financial system experienced liquidity squeeze Friday following the Nigeria National Petroleum Corporation (NNPC) withdrawal of the N58 billion accumulated credit it gave major oil marketers for product supply and funding of second tranche of the Federal Government bond.
Given this scenario, cost of funds (inter-bank rates) at the money market moved Friday, with call money trading as high as 7 per cent per annum as against 2.5 per cent which ruled the market last Monday.
Mirroring developments at the money market, investment at the Government Securities Trading dropped by 5.75 per cent or N3.76 billion, thereby enabling the Central Bank of Nigeria (CBN) to withdraw a total of N61.59 billion at the weekend as against the N63.65 billion of the previous week.
The Government Securities Trading comprising the Open Market Operations (OMO) and the Primary Market Auction (PMA) are some of the windows available for investment through which the CBN controls the amount of liquidity in the system by selling treasury bills from which the Federal Government borrows indirectly from banks, thereby mopping up their excess funds.
On bi-monthly bases, the NNPC usually grants the major oil marketers, a 15-day credit facility for the lifting of petroleum products from its depots and later recalls such funds.
Following the withdrawal of the money owed on product supply and funding of the second tranche of Federal Government bond, which was oversubscribed by 210 per cent, the liquidity position in the money market remained tight at the weekend.
This trend is however expected to persist this week until the statutory allocation for this month (August) is expected to be released. It is also anticipated that maturities from treasury bills this week will cushion the effect of tightness in the market.
Net outflow through the PMA and the OMO markets last week stood at N21.89 billion.
A breakdown of the amount withdrawn from the economy last week shows that the apex bank withdrew N200 million, N580 million on Wednesday and Thursday respectively through the daily OMO, while N20.000 billion, N20.000 and N20.812 billion were mopped up through the PMA.
At Monday's and Tuesday's 49 days tenured investment with September 26 and 27, 2005 as its maturity dates, no bills were sold, while bills amounting to N300 million matured for repayment at Monday's trading.
At Wednesday's OMO where bills with life span of 49 days and maturity date of September 28, 2005 were sold, all the N200 million worth of bills received were sold at the issue and bid rates of 3.2000 per cent. The true yield stood at 3.2138 per cent, while no bill matured for repayment. The total net sale/purchase position stood at N200 million.
At Thursday's OMO where bill with life span of 49 days and maturity date of September 29, 2005 were traded, all the N580 million worth of bills received were allotted at the bid and issues rates of 3.2500 percent. True yield was 3.2644 percent while no bill matured for repayment, putting the net sales/purchase at N580 million.
Minimum Rediscount Rate (MRR) that is the nominal anchor of all interest rates in the economy has remained constant at 13 per cent per annum.