• Tuesday, March 19, 2024
businessday logo

BusinessDay

Maturing OMO, NT-bills to push system liquidity to N955.9bn

Treasury Bills

The financial market liquidity which stood at N590.8 billion on Monday morning will further rise to N955.9 billion as maturing Treasury Bills (NT-bills) and Open Market Operation (OMO) worth N365.1 billion hit the market this week.

A breakdown of the inflows showed that N305.7 billion from OMO and N59.4 billion worth of T-Bills would enhance system liquidity during the three-day trading session of the week after the holiday.

A report by Afrinvest Securities Limited said the outcome of the Primary Market Auction (PMA) on Monday would shape activities in the NT-Bills market for the rest of the week.

“As we expect stop rates to inch higher across board. Our recommendation is for investors to trade cautiously while taking advantage of attractive opportunities along the yield curve as well as corporate offerings such as available commercial papers,” Afrinvest analysts said.

The report revealed that sentiments in the NT-Bills secondary market were mixed albeit with mild bullish bias. Buying interests were witnessed at the start of the week following an inflow (c. N190.0bn) from the Federation Accounts Allocation Committee (FAAC) which bolstered system liquidity (N590.8bn long on Monday).

Despite the release of April’s CPI (Consumer Price Index) data which indicated that inflation rose by 8bps to 12.34 percent Y-o-Y, average yield across all tenors dipped 11bps W-o-W to close at 2.2 percent on Friday. Buying interests were observed across the mid and long-term instruments particularly the 27-Aug-20 (-59bps) and 10-Sep-20 (-44bps) maturities while yields on the short-term instruments closed flat.

Ahead of the Monetary Policy Committee (MPC) scheduled to hold today to discuss monetary policy parameters, analysts do not expect a change in the policy stance of the Central Bank of Nigeria (CBN).
“We expect the MPC to retain all policy rates at current levels while it continues to utilise other strategies to control interest rates. The elephant in the room will be the stability and liquidity of the exchange rate,” Afrinvest analysts said. “That said, we expect the outcome of the meeting to impact activities in the NT-Bills and Bonds market this week.”

Ayorinde Akinloye, a research analyst at CSL Stockbrokers, said the ideal scenario would be to see the MPC ease on the MPR in a bid to support growth given slower Q1 growth and projections of a recession.
“However, we have to note the important role exchange rate plays in our economy with respect to GDP and inflation. Thus, with exchange rate still pressured, I would expect the MPC to maintain status quo,”
Akinloye said.

“Furthermore, the impact of a 100bps or 200bps cut in MPR on borrowing cost remains dubious given borrowing cost in Nigeria is generally sticky upwards,” he said.

Obinna Uzoma, chief economist at EUA Intelligence, thinks the MPC should hold rates. He said as much as there is need to support the economy due to weaker productivity, lower interest rate won’t send people back to work, only a vaccine will.

“Economic stimulus is required but mostly fiscal subsidies like lower taxes and delayed payment of taxes,” Uzoma said.

He said credit risk is worse today and inflation is stubbornly going up for very obvious reasons. As such, raising rates will increase the hardship for borrowers and banks who are struggling with lower revenue and weaker liquidity, while lower rates could further worsen inflation and exchange rate.

“So, the best option is to remain as is but loosen restrictions on CRR and LDR so that banks can create more loans with lower CRR which will help stimulate the economy and banks don’t get punished for not taking more risk with lower LDR. If anything, banks should be allowed to increase purchases of government securities to reduce the overall risk of their portfolio and support Federal Government borrowings,” he said.

However, Uche Uwaleke, professor of finance and capital markets, chair, Banking and Finance Department, Nasarawa State University, Keffi, said he sees the MPC reducing the CRR.