By Obinna Chima

Treasury bills valued at N329.9 billion are expected to mature this Wednesday. This however is expected to be offset by an auction of same amount.

The treasury bills market was generally bullish last week as average yields declined on most trading days. For instance, as at last Monday, average rates closed at 5.6 per cent (down 0.3% from the preceding Friday). But consequent on the N257.9 billion open market operations (OMO) maturity last Thursday, average treasury bills rates further declined to 5.3 per cent but surged to 5.8 per cent on Friday as rates rose across all tenors.

In the week ahead, Afrinvest West Africa Limited, in an analyst report anticipated that money market rates would trend in a similar weekly cyclical pattern dictated by provisioning for forex auctions and refunds.

Compared to the start of the preceding week where financial system liquidity opened at N1.1 trillion, liquidity stayed relatively low last Monday at N381.8 billion as unfulfilled bids from the Central Bank of Nigeria (CBN) forex intervention of the previous week were not credited to banks. Consequently, open buy back and overnight rates rose 0.8 per cent each to close at 1.4 per cent and 1.8 per cent on Monday.

However, following the banks’ provisioning for the weekly forex intervention by the central bank, the expected decline in liquidity level was offset by the credit for unfulfilled bids of the previous week. Hence, liquidity inched higher to N404.3 billion last Tuesday.

Notwithstanding this, given that no significant inflows hit the system on Wednesday, money market and NIBOR rates closed higher at 4.1 per cent (OBB), 4.7 per cent (overnight) and 8.1 per cent respectively. They however dropped to sub-one per cent levels last Thursday as liquidity increased on the back of OMO maturity credit of N257.9 billion. Rates rose on Friday as the OBB and overnight rates settled at one per cent and 1.3 per cent, up 38 basis points and 33 basis points week-on-week respectively.

Forex Market
The naira strengthened against the US dollar on the parallel market to a high of N320/$ last week. The rally was however not unexpected given that the weakness in exchange rate in the previous week was driven majorly by speculations regarding inclusion of items such as international school fees and health care bills in the list of items banned for foreign exchange access at official and interbank markets.

Whilst the unpredictability of BDC and parallel market rates continued, the CBN and interbank rates remain unchanged at N197.00/$1 and N199.10/$1 respectively.

“We expect pressure to continue to mount on parallel segment rate as a fundamental demand/supply mismatch for foreign currencies subsists while liquidity remains weak in the interbank market,” Afrinvest stated.

The International Monetary Fund (IMF) last week reiterated its call for Nigeria to lift foreign exchange curbs. It noted that eliminating existing macroeconomic imbalances and achieving sustained private sector-led growth requires a renewed focus on ensuring the competitiveness of the economy.

As part of a credible package of policies, the fund recommended that the naira “exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market (IFEM).”

In addition, it stated that it “will be important for the regulatory and supervisory frameworks to ensure a strong and resilient financial sector that can support private sector investment across production segments (including SMEs) at reasonable financing costs.”

The multilateral institution stated this in its 2016 Article IV Mission statement on Nigeria. It however stressed that the views expressed in the statement were those of its staffs that visited Nigeria between Abuja and Lagos December 14-17, 2015 and January 10–25, 2016, respectively, saying it does not necessarily represent the views of the IMF’s Executive Board.

It pointed out that Nigeria was facing the impact of a sharp decline in oil prices, adding that due to its dependence on oil revenues, the general government deficit doubled to about 3.3 per cent of GDP in 2015, despite a sharp reduction in public investment.

Bond Market
The FGN bond market was generally bullish on the first three trading days last week with yields moderating across all benchmark bonds to an average of 11 per cent midweek from 11.3 per cent the preceding Friday. However, against the backdrop of an end-of-week profit taking and an OMO notification on Thursday (which eventually did not occur) activities were bearish on Thursday and Friday driving yields to a flat week-on-week close of 11.3 per cent.