Inter-bank rates to rise as investors key into DMO re-opening bond

The average money market rates or inter-bank rate, the rate at which banks borrow and lend to each other, is expected to increase slightly as investors key in into the Debt Management Office (DMO) bond re-openings set to hold this week, analysts at Afrinvest Securities Limited, have said.

The DMO will be conducting a bond auction as the re-opening of FGN Feb 2020 and FGN Jul 2034 is expected to raise N40 billion and N30 billion, respectively.

Money market rates stayed relatively low on all trading sessions last week as the market was awash with liquidity. As a result, average Open Buy Back (OBB) and Overnight rates berthed at 4.3 percent and 4.8 percent, respectively.

With N241 billion liquidity opening balance on Monday, market rates closed at 4.8 percent (OBB) and 5.3 percent (Overnight). As the slightly high liquidity level was maintained on Tuesday, OBB and Overnight rates dipped further to 4. percent and 4.6 percent, accordingly. Following the approval of the N2.1 billion states bailout by the president on Wednesday, liquidity level improved further pushing the OBB and Overnight rate down to 3 percent and 3.4 percent, accordingly.

Contrary to downward trend on the first three trading sessions in the week, there was a reversal in trend on Thursday, as the OBB rose to 5.3 percent and 6.1 percent, and this was consequent upon the weekly Cash Reserve Ratio (CRR) debiting and the Open Market Operation (OMO) mop up exercise worth N179.1 billion that held on said day. At close of the week, liquidity levels improved as Treasury Bills (TBills) worth N70.5 billion matured into the system.

At foreign exchange market, pressure on naira is expected to continue this week at the alternative BDC and parallel market segments due to expected increase in dollar demand by importers, according to analysts at Cowry Asset Management Limited.

In the parallel market, pressure on the local unit continues to intensify. The prohibition list released two weeks back had shifted demand by a large extent to the parallel market, causing the currency to trade as high as N236.50/$1.00. In the Bureau de Change segment, the naira declined 0.9 percent WoW to N232.00/$1.00.