Cost of funds to fall as Naira appreciates further


Cost of funds in the interbank money market is expected to fall this week in response to liquidity inflow through matured bills as Naira continues its strong runs against the dollar, National Daily has gathered.

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.

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.”

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National Daily also gathered that the Naira appreciated at the parallel market and in the Nigerian Autonomous Exchange (NAFEX) window significantly against the dollar last week.

The local currency, National Daily gathered appreciated 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.