Forex sales, TBs rattle interbank money market

• Banks deposit drop by N1trn

The interbank money market suffered bouts of intense scarcity of funds which sent up cost of funds to the roof following liquidity outflows to fund foreign exchange purchase and investment in treasury bills (TBs).

Analysis of TBs trading during the week showed  that the CBN offered and sold N135 billion worth of Primary Market TBs comprising N28.1 billion worth of 91-Days bills, N23.7 billion worth of 182-Days bills, and N83.2 billion worth of 364-Days bills.

While the 91-Days bills were undersubscribed with total public subscription at N17.1 billion, the 182-Days and 364-Days bills were oversubscribed with total public subscription at N28.3 billion and N90.4 billion respectively. In addition to this, the CBN also sold $264.3 million in forwards and spot transactions as well as $500 million special intervention sales.

As a result market liquidity, which closed last week at N21 billion dropped to minus N220 billion on Wednesday. This trend was however halted on Thursday and Friday, due to inflow of N264.3 billion from payment of matured TBs, and inflow of statutory allocation funds of N429 billion.
Reflecting the volatility of market liquidity, short terms cost of funds which closed the previous week at 16 per cent shot up to 100 per cent on Wednesday before crashing to 10 per cent at the close of business on Friday.

In terms of the direction of cost of funds this week, analysts at Afrinvest Plc, a Lagos based investment firm noted that: “In the coming week, we expect money market rates to remain dictated by CBN’s sustained but unpredictable interventions in the currency market.”

However, analysts at Cowry Assets Management Plc, a Lagos based investment firm, predicted a moderation in cost of funds due to impact of the inflow of the statutory allocation funds.

Meanwhile, total current account deposits of banks fell by N1 trillion in February, implying banks generated fewer deposits during the month due to the biting effect of the economic recession.

This was one of the highlights of the Depository Corporation survey for February 2017 recently published by the Central Bank of Nigeria (CBN).

Among other things, the survey revealed that total demand (current account) deposit of banks fell by 10.75 per cent to N8.6 trillion in February from N9.636 trillion in January. Similarly, currency outside the banks declined month-on-month (m-o-m) by 1.16 per cent to N1.61 trillion.

Consequently, Narrow money supply declined m-o-m by 9.36 per cent (and 11.35 per cent year-to-date, y-t -d) to N10.21 trillion.