Interbank Rates Rise on Liquidity Shortfall

The Nigerian Interbank Offered Rates (NIBOR) increased significantly to an average of 18.5 per cent on Friday, as against the 10.24 per cent it closed the preceding Friday, due to a decline in the level of liquidity in the system.

According to dealers, the interbank market, which is a market for short-term borrowing among commercial banks recorded withdrawals than injection last week.

The Central Bank of Nigeria (CBN) sold treasury bills worth N100 billion via Open Market Operations (OMO). A breakdown of the fixed income instrument sold showed that it comprised of 147-day bills worth N50 billion; 121-day bills worth N20 billion; and 122-day bills worth N30 billion. The monetary policy measure was basically to reduce the volume of money in circulation.

In addition, there were also withdrawals for purchase of forex put at about N124.23 billion as well as federal government bonds worth N90 billion that was sold last week.

Therefore, the outflows exceeded the inflows of N166.48 billion in matured treasury bills. The inflow from matured treasury bills comprised of 101-day bills worth N26.05 billion; 142-day bills worth N97.05 billion; and 147-day bills worth N43.38 billion.
Consequently, data from the FMDQ OTC showed that the NIBOR for all tenors increased.

For instance, while the Call tenor jumped to 17.75 per cent on Friday, from 11 per cent the preceding Friday, the 7-day tenor climbed to 17.92 per cent, from 11.25 per cent the preceding Friday.

In the same vein, just as the 30-day tenor closed higher on Friday at 18.29 per cent, from 11.54 per cent, the 60-day tenor also increased to 18.54 per cent, from 11.79 per cent.

In the same vein, the 90-day, 180-day and 365-day tenors all closed higher at 18.79 per cent, 19.04 per cent and 19.29 per cent respectively.

“This week, we anticipate moderation in interbank rates following Federation Accounts Allocation Committee (FAAC) disbursements worth N641.29 billion; maturing bonds worth N65 billion and maturing treasury bills worth N257.11 billion (viz: 91-day bills worth N50.28 billion; 141-day bills worth N42.93 billion; 150-day bills worth N66.91 billion; 182-day bills worth N33.27 billion; and 364-day bills worth N63.73  billion),” analysts at Cowry Asset Management Limited stated in a report at the weekend.

The firm also anticipated that that greater priority for exchange rate stability which would likely necessitate maintenance or an upward review of the Cash Reserve Requirement (CRR) of banks would be the focus of the Monetary Policy Committee (MPC) which meets next week (March 24th and 25th).

“Howbeit, the Monetary Policy Rate may be unchanged at 12 per cent given consideration for already high cost of funds to the real sector,” the firm added.

Forex Market
The performance of the naira against the United States dollar at various forex market segments was mixed last week.

At the Retail Dutch Auction System (RDAS), the central bank increased supply of the greenback by 3.92 per cent as it offered $800 million but sold $797.69 million to end users. Consequently, the naira strengthened by one kobo to N155.74 to a dollar at the RDAS.

However, the naira also depreciated by 23 kobo to N164.93 to a dollar at the interbank market segment while it weakened against the dollar at the Bureau De Change by 50 kobo to N171 to a dollar.

Furthermore, the naira/dollar exchange rate steadied at N172 at the parallel market.
Dealers forecast that the MPC may attempt to curb demand for forex via further money supply tightening when its reconvenes.

This is against the backdrop of worsening external reserves balance which tumbled to $38.79 as at last Wednesday.

Bond market
The CBN auction federal government bonds consisting of: re-opened three year, 13.05% FGN AUG 2016 bond worth N45 billion (marginal rate increased to 14.10 per cent from 13.49 per cent at previous auction) and a new 10-year FGN MAR 2024 bills worth N45 billion issued at a coupon of 14.20%. The increased marginal rate partly reflects increased exchange rate risks associated with sliding external reserves as well as recent foreign portfolio investor apathy to local debt instruments.

At the over-the-counter market, bond prices depreciated (and yield increased) for most maturities tracked.

The benchmark 20-year, 10% FGN JUL 2030 instrument tumbled by 25 kobo (yield increased to 13.65 per cent from 13.60 per cent); the 10-year, 16.39% FGN JAN 2022 debt shed 90 kobo as yield increased to 14.25 per cent from 13.96 per cent; while the 3-year, 13.055 FGN AUG 2016 bond moderated by 90 kobo as yields rose to 14 per cent from 13.98 per cent.

However, the 5-year, 4% FGN APR 2015 paper appreciated by 25 kobo as yields declined to 14.03 per cent, from 14.21 per cent.

According to analysts at Cowry Assets Management, the week, a long-term federal government debt worth N65 billion would mature.

“We also expect to see bargain hunting activities at the OTC market and resultant price appreciation (and decline in yields) against the backdrop of boost in system liquidity,” the firm added.

OPEC to Cut Exports
The Organisation of Petroleum Exporting Countries (OPEC) last week disclosed plans to cut crude exports this month to the lowest level since November as refinery demand slows in Europe and North America.

OPEC, responsible for 40 per cent of global oil supplies, would decrease shipments by 1.1 million barrels a day, or 4.6 per cent, to 23.6 million a day in the four weeks to March 29, Oil Movements had revealed.

The figures exclude two of OPEC’s 12 members, Angola and Ecuador. Sailings were last this low in the four weeks to November 16, when an extended maintenance period caused a fall in refinery demand, according to the consultant.

“There is a spring low point for refinery demand sometime in April” in Europe and North America, Oil Movements founder, Roy Mason, said by phone from Halifax, England.

“Demand is going down and sailings respond to that.”

Passage of PIB
The allegation that the Nigerian National Petroleum Corporation (NNPC) has not been transparent in accounting for oil sales proceeds makes the systemic reform of the oil sector and the urgent passage of the Petroleum Industry Bill (PIB) imperative, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala said  last week.

Okonjo-Iweala who lamented the delay in the passage of the PIB, said the draft law contained provisions to transform the oil and gas sector, including turning the NNPC into a commercial enterprise, which would open up the corporation and the oil industry to be more transparent and accountable to Nigerians.

"Yet the passage of the bill has been delayed in the National Assembly as a result of intensive lobbying by interest groups – some Nigerian, some foreign – who benefit from the status quo either through favourable oil deals or favourable treatment by the Nigerian tax system.

"We call on these groups to allow the bill’s passage. And we urge our National Assembly to have the courage to pass this long overdue bill now," she said.

On the allegation by suspended CBN Governor, Mallam Sanusi Lamido Sanusi, that NNPC had failed to remit $20 billion to the Federation Account, she explained that an inquiry into the issue should take a forensic approach to critically examine the corporation's accounts and those of its subsidiaries.

Source: ThisDayLive