Interbank Rates Rise on Cash Shortage

Shortage of cash in the banking system last week led to an increase in the overnight tenor of the Nigerian Interbank Offered Rates (NIBOR).

The central bank also sold about N63.98 billion of 7-month treasury bills at nine per cent on Thursday to further curtail excess liquidity in the banking system.

As a result of this, the open buy back (OBB) and overnight rates on Friday closed the week at four per cent and 4.5 per cent respectively, up by 0.9 per cent each week-on-week. Activities in the treasury bills market was mixed last week as average treasury bills rate closed at 7.3 per cent on Monday but rose 0.2 per cent to 7.4 per cent on Tuesday as liquidity levels dropped on the back of banks’ provisioning for forex auction.

“In the week ahead, we expect money market rates to be dictated by liquidity dynamics as well as the provisioning and refunds for forex and open market operations (OMO) mop-ups. There is a net treasury bills maturity of N167.5 billion on Thursday, the impact of this on liquidity levels is however expected to be offset by treasury bills auction of the same net amount,” analysts at Afrinvest West Africa stated.

Also, the forex market last week enjoyed stability. Though the spread between the official and parallel market remained, the volatility recorded in rates earlier in the year has subdued. The CBN, however, is still unable to meet the dollar demands as seen in the amount returned by the CBN to the bank for unfilled bids at the forex auction.

The official rate at the CBN remained at N197/$1 whilst naira/dollar rates at the interbank stayed at N199/$1.  The naira was stable at the Bureau De Change as it exchanged at N320.00/$1 on all trading days of the week. The parallel market also remained stable last week, as the naira traded at N323/$1 on all trading day of the week except Monday when it appreciated by N1 to N322.00/$1.

“Next week, we expect that the stability at all segments of the foreign exchange market will continue as speculative pressures remain passive,” Afrinvest stated.

In the bond market, similar to the preceding week, activities in the bonds market were mixed last week. Average yield across benchmark bonds closed at 11.6 per cent at the end of the first trading session of the week, rising five basis points from the last trading session of the preceding week. On Tuesday, average yield across benchmark bonds rose 0.3 per cent as the market reacted to inflation figures released. The Debt Management Office carried out a bonds auction on Wednesday with the re-issuance of N20 billion, N40 billion and N50 billion of the FGN FEB2020, FGN JAN2026 and FGN MAR2036 bonds at marginal rates of 12 per cent, 12.6 per cent and 13.1 per cent respectively.