Rates to fall on N755.95bn FAAC fund as naira faces pressure

The rates at which banks borrow from each other are expected to fall this week, while naira faces more pressure following the release of N755.95 billion by Federation Accounts Allocation Committee (FAAC).

The implication is when this fund flows through the financial system there will be too much naira chasing dollar, which leads to a fall in the value of the local currency while the Nigerian Inter-Bank Offered Rates (NIBOR) will decline as the banking system becomes more liquid as a result.

According to a report by Cowry Asset Management Limited, N134.89 billion worth of treasury bills will be auctioned on Wednesday, July 23 via primary market, viz: 91-day bills worth N34.89 billion; 182-day bills worth N48 billion; and 364-day bills worth N52 billion, while the same amount will mature on Thursday, July 24. On the same day, an additional N44.53 billion will mature via Open Market Operations viz: 114-day bills worth N39.53 billion; and 115-day bills worth N5.00 billion, all these will contribute to the liquidity of the market this week.

Last week, against the backdrop of debt issuance by Debt Management Office (DMO) and minimal inflows from FAAC disbursement, NIBOR increased across most tenor buckets. The 1 month, the 3 months and 6 months tenor buckets advanced to 12.5055% (from 11.8112%), 13.3937% (from 13.2787%) and 14.3374% (from 14.1202%), respectively. However, the overnight rate declined to 10.625% (from 10.875%).

Last week also, the central bank sold USD596.58 million (or N92.87 billion) to end users at its bi-weekly Retail Dutch Auction (RDAS), lower than USD621.91 million (or N100.05 billion) sold the preceding week. Consequently, the official naira/USD rate closed steady at N155.73/$1. At the interbank market, the naira appreciated by 0.42% (or N0.68) to N161.895/$, as local units of Total Nigeria, Mobil Nigeria, Addax Petroleum and Brass LNG sold an additional USD101 million (USD42 million, USD50 million, USD8 million and USD1 million, respectively). However, the local currency depreciated at the bureau de change (BDC) and parallel markets by 0.30% (or N0.50) each to N166.50/$1 and N168.00/$1, respectively.
The bond prices are expected to appreciate (while corresponding yields decline) as investors channel their investments to the secondary bond investment window in the absence of any primary market offer. The improved system liquidity will also bolster investor appetite, analysts at Cowry Asset have said.