The Central Bank of Nigeria (CBN) on Monday resumed its Open Market Operation (OMO) sales by mopping up liquidity from the banking system to the tune of N450 billion, pushing up interest rates.
The breakdown of the OMO auction which, opened at 09:55 a.m. and closed at 10:15 a.m shows that N200 billion was offered for 101 days at a stop rate of 13.15 percent and will mature in March 29, 2018. This recorded total subscription of N38.5 billion.
In the same vein, the N250 billion offered for N255 days at a stop rate of 14.95 percent was oversubscribed with a total sale of N314.8 billion. This will mature August 30, 2018 traders said.
Consequently, the Nigerian Interbank offer rate (NIBOR) or overnight rates, which are the rate at which banks lend to each other, rose to 13.25 percent on Monday as against 4.33 percent on Friday, data obtained from FMDQ indicated.
The Open Buy Back (OBB) also increased to 12.33 percent on Monday compared to 3.75 percent closed on Friday last week. The OBB is a money market instrument used to raise short term capital. It is a form of borrowing using Nigerian Government Securities (Treasury Bills) as collateral. It is an open ended transaction with both parties maintaining the right of liquidation or a roll-over without prior notice within trading hours of the day.
The banking system liquidity stood at N786.6 billion at the end of last week, the highest in recent months. This follows significant inflows from primary market repayment of N131.4bn and additional OMO repayments of N209.6bn. Hence, OBB and OVN rates dropped to 1.4 percent and 1.9 percent respectively on Thursday and closed the week at the same level.
Ayodeji Ebo, managing director, Afrinvest Securities limited told BusinessDay by phone that the OMO auction signalled to the market the CBN’s discount rates.
He explained that if the CBN did not conduct the OMO auction, lenders might channel the funds to other areas like foreign exchange trading which may lead to pressure and speculation in the market.
The CBN last week released its Treasury Bills issue programme for the first quarter, which revealed its plans to roll over N1.08 trillion during the period.
“There will be an OMO maturity of N105.0bn and T-bills maturity worth N55.1bn, thus we expect to see improvements in system liquidity levels and sustained improvement in trading activities,” analysts at Afrinvest Securities said.
At the foreign exchange market, the nation’s currency appreciated marginally by N0.02k to close at N360.94k per dollar on Monday from N360.94k/$ traded on Friday last week at the investors and exporters forex window, data from FMDQ show.
The local currency was quoted at N306.20k at the inter-bank market on Monday, gaining 0.02 percent compared to N306.25k traded on Friday last week.
Godwin Emefiele, CBN governor noted at the last Monetary Policy Committee (MPC) meeting that Money market interest rates oscillated in tandem with the level of liquidity in the banking system as the average inter-bank call rate, which opened at 12.00 percent on October 3, 2017, closed at 5.38 percent on November 16, 2017.
The OBB rates opened at 10.41 per cent and closed lower at 6.02 per cent in the same period.
However, the average inter-bank call and OBB rates for the period stood at 10.94 and 10.15 percent, respectively.
The development in net liquidity positions and flows reflected the effects of Federation Account payments to states and local governments; remittances by the Nigerian Customs, Federal Inland Revenue Services; OMO sales; foreign exchange interventions and maturing CBN Bills.
HOPE MOSES-ASHIKE
