The surfeit of excess liquidity in the interbank money market will persist this week courtesy of inflow of about N1.7 trillion.

Consequently, cost of funds is expected to remain in the lower single digit level while the Central Bank of Nigeria (CBN) is expected to sustain liquidity mop through sale of OMO (Open Market Operation) treasury bills.

Last week, the market recorded N627.2 billion inflow from matured OMO bills. The inflow, which cancelled the impact of N299.9 billion outflow through sales of OMO bills caused market liquidity to close at N778.5 billion on Friday, up from N482 billion at the beginning of the week.

As a result, cost of funds remained stable below five percent throughout the week, though average short term interbank interest rate rose marginally by 54 basis points week-on-week.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose marginally by 50 bpts to three percent last week from 2.5 percent the previous week. Similarly, interest rate on Overnight lending rose by 58 basis points to 3.83 percent last week from 3.25 percent the previous week.

Analysts expect cost of funds to remain at this level this week, due to inflow of N1.7 trillion expected this week, namely, N950 billion from maturing OMO bills, N111.18 billion from maturing Nigeria Treasury Bills (NTBs), and statutory allocation from the N677.3 trillion to be released by the Federal Accounts Allocation Committee (FAAN) this week.

According to analysts at Lagos based investment firm, Cordros Capital, “We expect the Overnight rate to remain depressed in the coming week, supported by a significant boost to system liquidity from OMO inflows worth NGN927.75 billion on Thursday.”

Similarly, analysts at Afrinvest Limited stated: “In the coming week, we expect inflows of N927.8 billion from OMO maturities and we believe the CBN to conduct OMO auction. We believed increased liquidity resulting from the huge inflows from OMO maturities will pressure yields in the secondary treasury bills market.”

The inflow of N1.7 trillion is also expected to increase demand for FGN bonds this week and hence further appreciation in bond prices.


“With over N950 billion of OMO maturities to come in next week, we expect significant demand, as investors’ scramble to lock-in excess funds at attractive yields”, said analysts at Zedcrest Capital Limited in their forecast for the week.

In the same vein, analysts at Cowry Asset Management Limited, said: “In the new week, we expect OTC bond prices to appreciate (and yields to moderate) against the backdrop of expected boost in financial system liquidity.”

Making a similar projection, analysts at Cordros Capital stated: “We expect sustained demand next week across the bond yield curve, as market players seek to re-invest excess liquidity from incoming maturities.”

The naira appreciated in the parallel market and in the Investors and Exporters (I&E) window last week even as the CBN sustained its weekly dollar injection of $210 in the interbank foreign exchange market.

The naira appreciated by 50 kobo in the I&E window as the indicative exchange rate dropped to N364.26 per dollar last week from N364.76 per dollar the previous week.

Similarly the naira appreciated by 20 kobo in the parallel market as the exchange rate of the market dropped to N358 per dollar last week from N358.2 per dollar the previous week.

But the decline in the nation’s external reserves deepened last week, as the reserves fall to $36.695 billion on Thursday, February 20 from $37.231 billion on Thursday, February 13. This translated to week-on-week (w/w) decline of $536 million, representing 8.5 percent when compared to the w/w decline of $494 million the previous week.

According to analysts at Cowry Assets, “In the new week, we expect stability of the naira against the dollar across the market segments as CBN sustains its intervention; although at a cost to Nigeria’s external buffers.”

Analysts at Cordros Capital however warned that efforts of the CBN to defend the naira cannot be sustained beyond the first half of the year (H1’20).

They said: “Looking ahead, we expect the still healthy foreign reserves to support the CBN’s currency defence over H1-20. Further out, the blend of tighter cash inflows, faster pace of capital repatriation, and possible resurgence of speculative attacks on the naira will force the CBN to throw in the towel in our opinion.”

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