Currency in circulation fell to N1.9 trillion in January 2017, representing 8.47 percent decline compared with N2.2 trillion in December 2016, according to data obtained from the website of the Central Bank of Nigeria (CBN).
The currency in circulation, which is the physical money used for transactions between consumers and businesses, rose to N2.18 trillion in December 2016 from N1.91 trillion in the preceding month.
Year-on-year, currency in circulation rose by 26.32 percent from N1.73 trillion in January 2016 to N2.18 trillion in December 2016.
Meanwhile, net domestic credit upped by 0.45 percent to N26.97 trillion, as credit to the private sector declined by 2.91 percent to N22.37 trillion, while credit to the government increased by 20.85 percent to N4.60 trillion; which was indicative of crowding out of the private sector in a high interest rate environment, analysts as Cowry Asset Management said.
The Open Buy-Back (OBB) and the Overnight (OVN) interbank rates, which are money market indicators higher at 14.83 percent and 15.6 percent, respectively. The rates fell on two of five trading sessions in line with movement of system liquidity.
Analysts at Afrinvest Securities Limited attributed the liquidity balance to CBN’s Treasury Bills Auction (PMA) worth N202.4 billion as well as the DMO’s February Bond Auction, resulting in a N160 billion debit from the system. These more than offset the impact of c. N200 billion Federation Account Allocation Committee (FAAC) inflow, which hit the system on Wednesday.
In the end, OBB and OVN rates closed the week at 17.8 percent and 18.7 percent, as CBN conducted an OMO auction that squeezed N197.6 billion from the system, hence rates increased 57.4 percent and 53.4 percent week-on-week, respectively.
At the foreign exchange market, the pressure on the local currency is expected to continue this week as supply shortage intensifies.
Dollar supply shortage continued last week as forex rate remained tightly held at the official market due to CBN’s daily intervention, while parallel market rate depreciated further. Official rate opened at N305.50/$1 and traded around this level throughout the week.
At the parallel market, rate opened the week higher at N506/$1, recording depreciations on all five trading sessions and eventually closed at N516/$1. The spread between the Official and Parallel market widened to N210.50/$1 this week.
