Cost of funds will decline further this week in the interbank money market as inflow of over N1 trillion from statutory allocation funds and maturing treasury bills (TBs) aggravates excess liquidity in the market. Naira notes Last week cost of funds declined for the second consecutive week, with average interest rate for short term lending falling by 150 basis points in two weeks.
Data from FMDQ showed that interest rate on Collateralised lending (Open Buy Back, OBB) fell by 108 basis points (bpts) to 6.75 percent last week from 7.83 percent the previous week. Similarly, interest rate on overnight lending dropped by 58 bpts to 7.92 percent last week from 8.5 percent the previous week. The decline in cost of funds was facilitated by persistent excess liquidity in the interbank money market, worsened by inflow of N364.33 billion from matured Open Market Operation (OMO) TBs.
The situation was compounded by the unsuccessful efforts of the CBN to mop up the inflow with new OMO TBs of equal value due to investor resistance. Financial Vanguard analysis revealed that the N363.33 billion OMO TBs offered by the apex bank was undersubscribed by 73 percent with investors purchasing just N97.9 billion.
Consequently, the market ended with excess liquidity of N360 billion, while banks’ placement of idle funds in the CBN’s Standing Deposit Facility (SDF) stood at N225.27 billion as against borrowing of N6.70 billion through the Standing Lending Facility (SLF).
While the CBN will this week sell primary market (fresh) TBs worth N206.95 billion, analysts project that excess liquidity will rise further due to combination of continued investors’ resistance to CBN’s liquidity mop up efforts through OMO TBs and inflow of over N1 trillion.
The inflow comprises N521.72 billion from maturing TBs and over N500 billion from statutory allocation funds to be disbursed to the three tiers of government this week by the Federal Accounts Allocation Committee (FAAC).
(Vanguard)
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