Interbank Rates Rise as Treasury Bills Auction Drains Liquidity

11 Feb 2013

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CBN Governor, Sanusi Lamido Sanusi

By Obinna Chima
The Nigerian Interbank Offered Rates (NIBOR) climbed to an average of 14.21 per cent on Friday, compared to the 13.04 per cent it attained the preceding Friday.

This was largely attributed to the aggressive open market operation (OMO) activities by the Central Bank of Nigeria (CBN) during the week.

THISDAY checks showed that the apex bank through its OMO, sold treasury bills worth about N597 billion.

OMO is a monetary policy instrument used to buy or sell securities in the open market. The CBN uses it to control the volume of money supply in the economy. As a result of its restrictive monetary policy, the apex bank intensified its mop up of excess liquidity in the system by sale of treasury bills with OMO.

Consequently, data made available by the Financial Market Dealers Association (FMDA) showed that while the overnight tenor jumped to 13.21 per cent on Friday, from 11.91 per cent the preceding Friday, the 7-day tenor advanced to 13.54 per cent on Friday, from 12.25 per cent the preceding Friday. In the same vein, just as the 30-day tenor increased to 13.87 per cent from 12.87 per cent, the 60-day tenor also climbed to 14.21 per cent, compared to the 13.04 per cent it stood the preceding Friday.

The Nigerian treasury bills market has continued to attract offshore participation as a result of the positive outlook on the economy.
Just like JP Morgan, Barclays would add Nigeria to its local-currency government bond index in March.

However, unless funds from Federation Account Allocation Committee (FAAC) are shared this week, the shortage of funds in the system may worsen as the treasury bills due for maturity on June 13, 2013, worth N116.61 billion, would be traded today.
Exchange Rate
The naira was relatively stable against the United States dollar last week due to moderate demand for the greenback. At the Wholesale Dutch Auction System (WDAS), the naira maintained its value of N155.74 to a dollar. Whereas the apex bank offered a total of $270 million, it only sold a total of $262 to the dealers that participated in the auction. The CBN had also offered a total of $270 million the preceding week. But at the interbank market, the local currency dipped marginally by 6 kobo to close at N157.27 to a dollar, compared to the N157.21 to a dollar it attained the preceding Friday.

Analysts at FMDA predicted that the naira would likely retain its present strength against the dollar, saying that further accretions to external reserves and steady foreign exchange inflow into the fixed income markets would remain potent buffers against occasional demand pressures.

“Yields of benchmark bonds are expected to dip slightly further as access to stimulus funds in some Organisation for Economic Cooperation and Development (OECD) member countries boost offshore investors’ position in the debt market ahead of the inclusion of FGN bonds in Barclay’s Emerging Market Local Currency Government Bond Index in March,” the association said in its latest economic report.
External Reserves
Nigeria’s external reserves that have been upbeat since the fourth quarter of last year, extended its accretion to close at $46.220 billion on Thursday.

Data gathered from the CBN’s website yesterday, showed that the current forex reserves position, represented an increase by $1.883 billion this year, compared to the $44.337 billion it stood as at January 2, 2013. THISDAY learnt that the performance of the reserves that is derived majorly from the proceeds of crude oil sales was largely influenced by the appreciation of crude oil prices. Analysts at FSDH Merchant Bank Limited pointed out that the collaboration between the Federal Government and the banking sector regulator to improve the external reserves position had continued to yield positive results.
Cashless Policy
The CBN last week said it had concluded plans to extend the cashless policy to Rivers, Kano, Anambra and Abia States as well as the Federal Capital Territory (FCT) from July 1.

CBN Deputy Governor (Operations), Mr. Tunde Lemo, told THISDAY that the aforementioned states and the FCT were chosen because of the large volume of cash transactions in some of their major cities such as Aba, Kano, Port Harcourt and Onitsha.

Lemo said: “When we talk about nationwide roll-out, we are also being careful to ensure that we make use of resources in a smart way. Cash doesn’t flow the same volume in every state of the federation. What we would do in July is to look at those other market clusters where large amount of volume is transacted and add them to Lagos.
“It is cheaper that way because the resources you need to cover the entire 923 square kilometres in Nigeria are huge. That is: Abuja, Kano, Aba, Port Harcourt and Onitsha.”
Sovereign Wealth Fund
The Federal Government last week disclosed plans to increase the seed capital of the Sovereign Wealth Fund (SWF) from $1 billion to $5 billion in the next three years.

Minister of State for Finance, Alhaji Yerima Ngama, said the differences between the Federal Government and state governors, which have delayed additional transfers to the fund, may soon be resolved by expanding the representation of states on the Board of the Nigerian Sovereign Investment Authority (NSIA).
“Once we look at the board and say, okay, state governors, bring your own representatives on the board, I think it will solve it,” he added. Quoting the International Monetary Fund (IMF), Ngama declared that the country’s economic output is forecast to expand more than 6.7 per cent this year.
Power, Airline Fund
The CBN last week said it has disbursed a total of N181.42 billion under its Power and Airline Intervention Fund (PAIF), as at December 31, 2012. The chart showed that in the month under review, while 15 airline projects benefited a total of N90.92 billion from the fund, a total of N90.50 billion was also disbursed to 21 power projects as at December. However the chart did not reveal the names of the firms and projects that benefitted from the sum.
Financial Inclusion
The CBN last week restated its commitment to reducing the country’s non-banking population by 20 per cent before the year 2020. The move is part of the apex bank’s financial inclusion strategy aimed at ensuring greater participation in the nation’s financial sector. The Director, Banking and Payments System Department, CBN, Mr. Dipo Fatokun, noted that no nation could progress or truly develop if majority of its population are under-banked or has no access to financial services. To this end, Fatokun said, the CBN is vigorously working to ensure the success of the mobile money initiative as a financial inclusion strategy to reduce the nation’s unbanked population by 20 per cent.
“The percentage figure of Nigeria’s unbanked population currently stands at 46.3 per cent. And the CBN will work to ensure the success of the strategy,” he disclosed.
Treasury Bills
A total of N11.089 trillion was invested in treasury bills by financial institutions and investors in 2012, data compiled by THISDAY last week showed.
It showed that while a total of N4.393 trillion was invested in the short-term instrument through the CBN’s OMO treasury bills purchased via the Primary Market Auction (PMA) last year was a total of N6.695 trillion. The research revealed that banks and other investors were willing to invest more in all the auctions as the treasury bills were over-subscribed. A breakdown of the data gathered from the Financial Market Dealers Association (FMDA) showed that at the OMO, while a total of N2.560 trillion was subscribed in the first quarter, the amount sold stood at N999.977 billion. Similarly, just as the amount of subscription recorded in the second quarter of the year was N1.906 trillion, the apex bank only sold N679.648 billion.

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