The money market will this month be awash with liquidity estimated at N2.68 trillion from the various maturing government securities and Federation Account Allocation Committee (FAAC).
There is an estimated outflow of approximately N1.14 trillion from the various sources, including government securities and statutory withdrawal, leading to a net inflow of about N1.53 trillion.
“We expect the Central Bank of Nigeria (CBN) to use Open Market Operation (OMO) to manage the liquidity in the market,” said Ayodele Akinwunmi, head, research and strategy FSDH Research.
Last week, the CBN mopped up excess system liquidity, which stood at N511.0 billion opening balance as at Thursday of the same week. The regulator-bank conducted an OMO auction offering N600.00 billion for investors. The OMO breakdown shows that N200.0 billion was offered for 91 days tenor and N400.0 billion for 203-day maturities.
The shorter tenor was 29.5 percent subscribed (N58.5bn subscription against N200.0 billion offered) while the longer tenor was 76.0 percent subscribed (N304.0bn subscribed vs. N400.0 billion offered) as more investors positioned at the longer end, according to a report by Afrinvest Securities Limited.
Consequently, overnight rate, which is the rate at which banks borrow and lend to each other increased to 4.25 percentage rate on Thursday last week compared to 3.75 percent recorded on Wednesday the previous day, data from FMDQ indicated.
The Open Buy Back (OBB) rate, a money market instrument used to raise short term capital also rose to 3.33 percent on Thursday last week as against 2.92 recorded the previous day, Tuesday.
Also, an inflow of N452.0 billion from OMO maturity is expected to boost system liquidity in the money market today.
“On the back of the expected system liquidity boost and absence of Primary Market Auction (PMA), we expect the CBN to conduct more frequent OMO auctions to mop up excess liquidity”, analysts at Afrinvest said.
“We anticipate a bullish performance in the T-Bills secondary market consequently leading to a slight moderation in yields across the curve. Investors are advised to position in short to medium term bills as we anticipate more attractive rates closer to the 2019 general elections”, the analysts added.
The overnight rate, yesterday, Wednesday rose marginally to 8.54 percent from 8.42 percent on Tuesday. The OBB also increased from 7.58 percent on Tuesday to 7.75 percent, FMDQ data indicated.
Godwin Emefiele, governor of CBN noted at the last Monetary Policy Committee (MPC) meeting in July that the average inter-bank call rate fell to 5.0 per cent in June 2018, from 25.43 per cent in May 2018, while the average Open Buy Back (OBB) rate decreased from 18.37 per cent in May 2018 to 10.84 per cent in June 2018.
The trend in market rates and the net liquidity position he said reflected the impact of the auction of Open Market Operations (OMO) bills, foreign exchange interventions, FAAC allocations to various levels of government, as well as the servicing of maturing CBN Bills.
At the Nigerian Treasury Bills (NTBs) auction, FSDH said average yield on the 91-day was down to 10.26 percent in the month of July compared with 10.36 percent recorded in June 2018. The average 182-Day NTB stood at 11.08 percent, up from 10.97 percent in June 2018. The average 364-Day NTB yield also closed marginally lower to 12.99 percent July 2018. Meanwhile, the average 30-day NIBOR closed at 13.16 percent in July 2018, down from 13.87 percent in June 2018.
