Cost of Funds Drops on Improved Naira Liquidity



BY Obinna Chima

The overnight lending rate dropped to 26 per cent on Friday, from 65 per cent a day earlier after the Central Bank of Nigeria (CBN) refunded excess naira offered in an earlier dollar sale to commercial lenders, injecting liquidity back into the money market.

Traders said that a cash squeeze on the money markets on Thursday after lenders provided naira to participate in a central bank currency intervention had pushed the overnight rate sharply higher.

The banking system’s cash balance with the central bank stood at N24.61 billion early on Friday before the central bank refund, Reuters disclosed.

“We see rates easing further next week. We anticipate about N200 billion would be disbursed to government,” one currency trader said.

The central bank sells hard currency regularly on the interbank market to boost dollar liquidity but in turn mop-up the naira. If it does not take up all offers, the excess naira is returned to lenders.

In   the   just   concluded   week,   CBN   auctioned treasury bills via primary market, viz: 91-day bills worth  N32.436  billion, as Stop  Rate (SR),  fell  to 13.50 per cent from   13.598 per cent; 182-day   bills   worth N22.824   billion, SR   fell   to   17.149 per cent  from 17.40 per cent; and 364-day bills worth N55.683 billion as SR  fell  to  18.70 per cent  from  18.98 per cent, which  was more than offset by matured treasury bills worth N122.51  billion.

According to Cowry Asset Management Limited, a breakdown of the matured treasury bills showed 91-day bills  worth  N32.436 billion,  182-day  bills  worth  N34.39  billion  and 364-day  bills worth  N55.683  billion.

“However, interbank rates increased across all the tenor buckets amid sustained liquidity squeeze, in line with our expectation. This week, 282-day treasury bills worth N7 billion will mature. Hence, we expect slight improvement in financial system liquidity and resultant moderation in interbank rates,” Cowry Asset added.

Forex Market  

Last week, the naira appreciated week-on-week at the Bureau De Change (BDC) and parallel market  segments by  2.60 per cent and 2.31 per cent   to   close   at N375/$ and N381/$ respectively. Meanwhile, the Cowry Asset Management Limited disclosed in a report that weekly   movements   in   most   dated   forward contracts    at    the    interbank    OTC    segment suggested future appreciation of the naira viz-a-viz the US greenback despite decrease in the foreign exchange reserves.

The external reserves decreased week-on-week by 0.60 per cent to $30.723 billion as at Wednesday, 17 May 2017. But the one-month, three-month, six-month and 12-month forward  contracts  appreciated  week-on-week  by  0.11 per cent,  0.11 per cent,  0.11 per cent  and  0.12 per cent to  N319.69/$, N327.76/$,  N336.24/$ and  N353.70/$  respectively.

Furthermore, the spot rate appreciated by 0.05 per cent to N305.45/$ amid the $7.5 million in intervention sales by the Central Bank of Nigeria (CBN) to banks.

In  the  current  week,  we  expect  further  stability  in  the  foreign  exchange  market  with  possible  appreciation against the dollar subject to CBN’s level of intervention


Bond Market

In the  bond  market,  FGN  bonds  traded  at  the OTC    segment    depreciated    across    all    the  maturities  amid  sell  pressure,  in  line  with  analysts’ expectation.

In fact, the 20-year,  10.00%  FGN  JULY 2030  debt,  the  10-year 16.39 per cent FGN  JAN  2022 debt  and the  7-year  16.00%  FGN  JUN  2019 debt  depreciated  by  N0.16,  N0.46  and  N0.25 respectively;  just as their  corresponding  yields  rose  to 16.08% (from  16.04%),  16.23%  (from  16.09%) and    16.48%    (from    16.33%)    respectively.

Elsewhere,   FGN   Eurobonds   traded   on   the London   Stock   Exchange   increased   in   value across most of the maturities amid bargain hunting. The 10-year, 6.75% JAN 28, 2021 bond and the 10-year, 6.38%  JUL  12,  2023  bond  appreciated  by  $0.14 (yield  fell  to  4.908%)  and  $0.20  (yield  fell  to  5.80%) respectively.

This week, analysts anticipate resumed bargain hunting in the OTC market on the back of expected boost in financial system liquidity.

April Inflation

For three consecutive months, the Consumer Price Index (CPI), which measures inflation rate continued to decline, figures released by the National Bureau of Statistics (NBS) have indicated. The NBS said the CPI or inflation rate dropped to 17.24 per cent (year-on-year) in April, declining by 0.02 per cent from the figures recorded in March, 2017. The rate had dropped from 17.78 per cent in February to 17.26 in March, having stood at 18.72 per cent in January

“This is the third consecutive month of a decline in the headline CPI rate, exhibiting effects of some easing in already high food and non-food prices, as well as favourable base effects over 2016 prices.

“Increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions that yield the Headline Index. The top items to have recorded the highest year- on-year increases across all the divisions were solid fuels, bread and cereals, meat, liquid fuels, clothing materials, other articles of clothing and clothing accessories, and fish,” the statistical agency said in its inflation report for April, 2017.

However, on a month-on-month basis, the headline index increased by 1.60 per cent in April 2017, a 0.12 per cent points lower than the rate recorded in March (1.72 per cent).

The NBS figures indicated that the highest price increases were recorded more in the food items segment such as coffee, tea and cocoa, potato, yam and tubers, bread and cereals, milk cheese and eggs as well and meat and fish. The data showed that the rate for food year-on-year was 18.44 per cent in March and 19.30 per cent in April.

FG’s February Revenue

Nigeria’s gross federally-collected revenue rose by 20.4 per cent in February 2017 to N545.05 billion, as against the N433.86 billion recorded in January 2017, the CBN’s economic report for February 2017 showed. The increase relative to the preceding month level was attributed to the rise in receipts from both oil and non-oil components.

But, the revenue receipt recorded in February, fell short of the 2017 provisional monthly budget estimate of N792.71 billion by 31.2 per cent, according to the report. Gross oil receipts, at N292.82 billion or 53.7 per cent of total revenue, fell below the provisional monthly budget estimate by 0.6 per cent. But, it was 37.9 per cent higher than the receipts in January 2017. The increase in oil revenue relative to the preceding month reflected the significant rise in receipts from domestic crude oil/gas sales and PPT/Royalties. According to the report, at N252.24 billion or 46.3 per cent of the total revenue, gross non-oil revenue was below the 2017 provisional monthly budget estimate of N498.14 billion by 49.4 per cent. It, however, exceeded the receipts in January 2017 by 4.9 per cent. The poor performance relative to the provisional budget reflected the shortfall in most of the components due to the low economic activities in the country during the review period.


Items Valid for Forex

Following misconceptions and enquiries across the market about items valid for accessing foreign exchange from the interbank market, the CBN last week listed the eligible items that are valid.

The CBN, in a circular signed by its Director, Trade and Exchange Department, W.D. Gotring, a copy of which was posted on its website, listed 35 set of items valid for forex, and urged authorised dealers to ensure compliance. The misconception was triggered by a recent central bank circular.

According to the latest circular, the items included animal or vegetable fats and oil fractions, hydrogenated (not including palm oil/Olein and margarine,); prepared glues and adhesive based on polymers of headings 39.01 to 39.13 or on rubber; other plates, sheets, film, foil and strip of polymers of ethylene printed (only for pharmaceutical manufacturing); and bobbins, spools, cops and similar supports of paperboard …..of kind used for winding textile yarn.

Some others listed were uncoated Kraft paper and board in rolls; synthetic filament yarn, textured yarn of nylon or other polyamides measuring per single yarn more than 50 text; woven fabrics of synthetic filament yarn, including woven fabrics obtained from material…polypropylene fabrics of the type used as carpet backing; laboratory – hygienic or pharmaceutical glassware; and other articles of plastics and articles of other matter (only for pharmaceutical manufacturing).