N331bn inflow from matured Treasury Bills rescues interbank market

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The interbank money market experienced huge outflows of cash last week leading to scarcity of funds which was halted by N331 billion inflows from payment of matured treasury bills. Vanguard investigations revealed that the amount of idle cash in the market fell from N633 billion on Monday to zero at the end of business on Tuesday as banks diverted the idle cash to participate in foreign exchange sales by the Central bank of Nigeria (CBN).

The ensuing scarcity of funds caused cost of funds to rise sharply from Tuesday to Wednesday. Data from Financial Market Dealers Quote (FMDQ) show that cost of unsecured lending rose from 0.67 percent on Monday to 7.17 percent on Tuesday and further to 8.61 percent on Wednesday. Similarly, cost of Over-night lending rose from 1.08 percent on Monday to 8.08 percent on Tuesday and further to 9.25 percent on Wednesday.

This trend was however reversed on Thursday when the market experienced inflow of N331 billion from payment of matured treasury bills. As a result, amount of idle cash in the market rose and closed the week at N462 billion. Consequently, cost of unsecured lending and Over-night lending fell sharply on Thursday and closed the week at 0.71 percent and 1.08 percent respectively.

Reflecting the improved liquidity (cash) in the market, treasury bills auction held on Friday recorded 400 percent oversubscription. Though the CBN offered N50 billion worth of secondary market bills (OMO), investors however demanded for N233.428 billion at interest rates (bid rates) ranging from 7.5 percent to 10 percent. The CBN accommodated N131.523 billion stopping at 7.6 percent.

Meanwhile the naira held firm at N305 per dollar in the parallel market from Wednesday to Friday. On Monday the naira had depreciated in the parallel market by N8 from N295 to N303 per dollar, and further to N305 on Wednesday due to scarcity of dollars as well as expectation that the Monetary Policy Committee (MPC) of the CBN will devalue the naira during its meeting held from Monday to Tuesday.

Bureaux De Change (BDC) operators told Vanguard that there is acute scarcity of dollar in the market, with little or no hope of supply from anywhere. Prior to last week, there was expectation that the CBN would come out modalities for BDCs to source autonomous dollars from oil firms. However, a meeting between the CBN and executives of Association of Bureaux De Change Operators of Nigeria (ABCON) scheduled to discuss the modalities, failed to hold last week, prompting pessimism about the fate of the naira in the parallel market.

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