The Central Bank of Nigeria (CBN) is expected to intensify efforts to mop up liquidity from the banking system this week in response to inflow of N552 billion from matured treasury bills (TBs).
Last week, the apex bank issued secondary market (Open Market Operations, OMO) TBs to mop up N316.23 billion from the interbank money market following the inflow of N375.98 billion from matured TBs.
Consequently, the impact of the inflow on cost of funds was muted as average short term interest rate rose marginally by 17 basis points (bpts).
According to FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending increased marginally by 17 basis bpts to 4.25 percent on Friday, from 4.08 percent the previous week, while interest rate on Overnight lending increased by the same margin to 5.0 percent last week from 4.83 percent the previous week.
This week, the market will experience outflow of N128.24 billion for purchase of primary market TBs to be issued by the CBN.
The primary market TBs to be auction comprise: 91-day bills worth N3.38 billion, 182-day bills worth N16.92 billion and 364-day bills worth N107.94 billion. On the other hand the market will experience inflow of N552.07 billion from matured TBs, translating to excess liquidity of N423.83 billion.
According to analysts at Lagos based Cowry Assets Management Limited, the huge net inflow should lead to moderation in cost of funds. However, the CBN, in its bid to curb the build-up in inflation rate, which rose from 11.14 percent in July to 11.28 percent in September, is expected to issue OMO TBs to mop up the excess liquidity.
Meanwhile, analysts at FSDH Merchant Bank have projected that the interbank money market will record net inflow of N1.79 trillion this month, adding that to mop up this excess liquidity, the CBN will increase yields on TBs with a view to enhance patronage from the investing public.
In the bank’s monthly economic and financial market outlook for November, they stated: “We expect a total inflow of about N2.82 trillion to hit the money market from the various maturing government securities and Federal Account Allocation Committee (FAAC) in November 2018.
“We estimate a total outflow of approximately N1.03 trillion from the various sources, including government securities and statutory withdrawal, leading to a net inflow of about N1.79 trillion. While we note that yields may inch up from the current levels, we do not see a significant movement in yields.
“FSDH Research also notes the possibilities of an increased liquidity in the financial system as a result of the implementation of the new minimum wage and electioneering spending.
“The Central Bank of Nigeria (CBN) may adopt the following strategies to manage liquidity: increase the yields on Nigerian Treasury Bills (NTBs), and/or increase the Cash Reserve Requirement (CRR) if there is elevated liquidity in the system.”