Nigeria’s money market will be awash with liquidity this month of June as a total inflow of about N1.36 trillion is expected to hit the market.
The expected inflows will come from the various maturing government securities and Federal Accounts Allocation Committee (FAAC) in June 2019.
However, a total outflow of approximately N753 billion is estimated from the various sources, leading to a net inflow of about N607 billion.
“The market is expected to be liquid in the month of June 2019; this may necessitate the issuance of Open Market Operation (OMO) to mop-up the liquidity in the system”, said Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited.
On Thursday, the Central Bank of Nigeria (CBN) mopped up a total of N170 billion from the banking system through its OMO instrument.
The results of the OMO auction show that the short and medium term instruments were undersubscribed while the long term tenor was oversubscribed.
A breakdown of the OMO auction result revealed that N20 billion was offered for 98 days to mature on September 12, 2019. The offer recorded total (under) subscription of N0.071 billion at 11.4 percent stop rates.
The N30 billion offered for 175 day tenor recorded a total of N2.13 billion subscription and sales at a bid range and stop rate of 11.63 percent. The offer will mature on November 28, 2019 was undersubscribed.
For the long term instrument, the CBN offered a total of N120 billion for 364 day tenor, which was oversubscribed by N155.78 billion at the stop rate of 12.48 percent. The offer which matures in June 4, 2020 was earlier bid at a bid range of between 12.42 and 12.50 percent.
Ayodeji Ebo, managing director, Afrinvest Securities Limited told BusinessDay that under subscription of the short and medium term tenor instrument was as a result of the attractiveness of rates in the secondary market.
He explained that the long term instrument was more attractive than the last primary market auction. The analysts at Afrinvest had earlier advice investors to take position in the expected OMO offering and stay alert for attractive medium to long-term bills available in the secondary market.
Overnight interbank rate which is the rate at which banks borrow and lend short-term money to each other, on Thursday dropped to 9.21 percent from 10.21 percent on Monday June 3, 2019. Similarly, the Open Buy Back (OBB) closed at 8.29 percent, representing 1.00 percentage point compared to 9.29 percent it stood on Monday.
FSDH advice investors to continue to invest in fixed income securities with good credit rating, and that companies should consider interest rate swap to manage the risks on their loans.
Nigeria’s external reserves continued its upward trend in May 2019, rising to hit US$45.12 billion as at the end of May. According to the CBN, the external reserves position is enough to cover over 13 months of imports.
There was a further drop in capital importation via the Investors’ and Exporters’ Foreign Exchange Window (I&E window) in May 2019 following the steep decrease in April 2019.
The total capital importation through the Investors and I&E window in May 2019 stood at US$2.10 billion, the lowest figure recorded since October 2018.
The crude oil price rallied further to hit a high of US$77.06/b in May 2019. Sanctions on Iran and Venezuela and the production cut by the Organization of the Petroleum Exporting Countries (OPEC) continue to drive the crude oil price.
However, there are growing concerns about the negative impact of the U.S and China trade disputes on global economy and demand for crude oil.
A slowdown in the global economy may reduce demand for crude oil and lower the crude oil price. These developments may have negative effects on Nigeria’s fiscal position, according to FSDH.
