Also during the month the CBN sold N820.15 billion worth of secondary market (Open Market Operations, OMO) treasury bills (TBs) while it repaid N225.65 billion for maturing bills. Thus the interbank money market experienced net outflow of N594 billion during the month.
However, cost of funds generally moderated downwards with average interest rate on short term interest rates falling 88 basis points (bpts). According to a review of activities in the interbank money market in April by Lagos based investment firm, Financial Derivatives Company, average liquidity within the banking system stood at N112.17 billion, 48.92 percent lower than the position of N219.63 billion in the corresponding period in March.
The company also stated that: “Due to the low liquidity within the system, the interest rate on Open Buy Back (OBB) and Overnight lending spiked to a two-month high of 40 percent and 42.93 percent respectively on April 15, before retreating to close the period the month at 8.96 percent and 9.82 percent respectively. “At the primary market, the 91-day, 182-day and 364-day T/Bills tenors fell by an average of 12 bpts.
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On the other hand, at the secondary market, the yield on the 91-day T/Bill tenor and 182day decreased by an average of 16 bpts while the 364-day T/Bill tenor yield increased by 5bpts”
In its projections for liquidity level and cost of funds this month, the company said: “Movement of interest rates in the coming weeks would remain a function of market liquidity. “Injections from OMO maturities and Federation Accounts Allocation Committee (FAAC) disbursements are expected to increase naira liquidity. However, we expect the CBN to manage excess liquidity using measures such as the sale of OMO and Treasury Bills, and forex interventions.’
” Cost of funds fall as N452bn boost interbank liquidity Meanwhile cost of funds fell sharply last week following inflow of N452.8 billion comprising N350 billion from statutory allocation funds and N62.8 billion from matured TBs and N40 billion from matured Commercial Papers (CP) The inflow cancelled out the effect of N109.7 billion through primary market TB sales held by the CBN during the week.
Consequently, interest rate on OBB lending fell by 1,100 bpts to 5.29 percent last week from 16.29 percent the previous week. Similarly, interest rate on Overnight lending dropped by 1,136 bpts to 5.93 percent last week from 17.29 percent the previous week.
Analysts at Afrinvest Plc, however, expect liquidity mop up by the CBN to reverse this trend this week. “In the coming week, we expect OMO maturities for instruments worth a combined N196.4 billion to hit the system on May 9. This should enhance system liquidity and consequently result in the CBN announcing an OMO auction at the start of the week, especially given the long position of the system”.
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