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CBN to mop up N1.2trn in 12 weeks

THE Central Bank of Nigeria (CBN) will, this week, commence plans to mop up N1.23 trillion in the next 12 weeks. The apex bank disclosed this through its third quarterly Treasury Bills Issuance programme released on Friday.
The programme revealed that the CBN will issue treasury bills (bills) worth N1.23 trillion from Wednesday, June 15 to Thursday, August 31. This, according to the apex bank, will bring the total outstanding bills to N3.7 trillion by the end of August. The bills to be issued, which also represent the amount of bills that will mature during this period comprise N226.64 billion worth of 91 days bills; N311.3 billion worth of 182 days bills; and N698.6 billion 364 days bills.
Further analysis revealed that the apex bank will issue N369.8 billion in the last two weeks of June comprising N67.1 billion worth of 91 days bills, N78.1 billion worth of 182 days bills, and N224.6 billion worth of 364 days bills. Bills of the same tenure and amount will mature during the period.

In July the apex bank will issue N382 billion worth of bills comprising N71.8 billion worth of 91 days bills, N61.2 billion worth of 182 days bills, and N249 billion worth of 364 days bills. In August the CBN plans to issue N484.6 billion worth of bills comprising N87.6 billion worth of 91 days, N172 billion worth of 182 days bills, and N225 billion worth of 364 days bills.
Cost of funds to fall this week
Cost of funds in the interbank money market is expected to fall this week in response to liquidity inflow through matured bills. Last week, cost of funds shot up by 800 basis points between Monday and Thursday, as outflow for purchase of dollars from the CBN occasioned intense scarcity of funds.
According to data from Financial Market Dealers Quote (FMDQ), interest rate on collateralised lending rose to 78.3 per cent on Thursday from 8.3 per cent the previous Friday. Similarly, interest rate on overnight lending rose to 81.67 per cent on Thursday from 9.0 per cent the previous week. However, the inflow of N73.6 billion from matured OMO (open market operation) bills on Thursday halted this trend, prompting interest rate on OBB and Overnight lending to fall to 17.67 per cent and 18.5 per cent respectively at the close of business on Friday.
System liquidity
This decline in cost of funds is expected to continue this week, due to inflow of N319.21 billion from matured bills. The inflow is also expected to cancel out the impact of N154 billion outflow for purchase of bills as well as outflow for dollar purchase during the week. Confirming this, analysts at Cowry Assets Management Limited, a Lagos based investment firm said: “We expect improvement in financial system liquidity and resultant stability in interbank rates.”
Naira appreciates in parallel market, NAFEX window
The Naira, last week, appreciated significantly against the dollar in the parallel market and in the Nigeria Autonomous Foreign Exchange (NAFEX) window.
Financial Vanguard findings revealed that the Naira appreciated against the dollar by N6.50 in the parallel market, as the parallel market exchange rate dropped to N364.5 per dollar from N371 per dollar the previous week. The appreciation was buoyed by combination of weak demand for dollar and sustained dollar injection by the CBN. During the week the CBN sold $40,000 to each of the 3,145 bureaux de change (BDCs) across the country, translating to injection of $125.8 million into the BDC segment.
The apex bank also injected $190 million into the interbank foreign exchange market comprising $100 million for wholesale intervention, $50 million for small and medium enterprises (SMEs) and $40 million for invisibles.
At the NAFEX window also known as Investors and Exporters window, the exchange rate dropped to N371 per dollar from N376.28 per dollar the previous week. The appreciation of the naira in the NAFEX window was occasioned by increased dollar supply due to improved confidence in the window.
This was reflected in a statement by Fitch Ratings, where it disclosed that dollar inflow into the NAFEX window has reached $1 billion per week.
In the statement entitled: “Foreign-Currency Liquidity Improving for Nigerian Banks”, the global rating agency expressed confidence in the window saying: “The Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, commonly referred to as the “Investors’ and Exporters’ FX Window”, appears to be boosting foreign currency (FC) supply and the flow of FC liquidity into the banking system.
“In our opinion, NAFEX offers a more transparent alternative to accessing FC than is available through the other foreign-exchange markets in the country. Several exchange rates operate in Nigeria. The CBN was the main supplier of FC during the height of the FC liquidity crisis and it still sells FC to the market through regular auctions, with banks acting as intermediaries. Its official exchange rate is NGN305 to the US dollar but it sets alternative official rates at its FC auctions and different rates apply for retail, wholesale, personal and small business purchasers of FC.
“NAFEX introduces yet another exchange rate, which adds to the confusion, but its rates are set by market participants and this is already attracting greater volumes than other exchange mechanisms.
“Access to FC is essential to boost growth in the country’s highly import-dependent economy. The ability of market participants to set their own rates under NAFEX is also forcing down exchange rates on the parallel markets. This is positive for the banks as it helps to draw funds back into the banking sector. Over time, exchange rates may converge, but this will depend on a range of market and political considerations.
“The CBN can intervene on NAFEX, but we understand from our recent discussions with banks that CBN interventions have been limited. NAFEX rates have averaged about NGN380 to the US dollar recently and volumes are reaching about $1 billion a week, according to these discussions.”
Meanwhile the CBN during the week introduced new guidelines to boost liquidity in the NAFEX window. The new guideline allows authorised dealers (banks) to trade amongst themselves without prior CBN approval.

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