COST OF FUNDS TO FALL AS N277BN BOOSTS INTERBANK LIQUIDITY

Cost of funds in the interbank money market is expected to fall this week in contrast to the 150 basis points (bpts) increase recorded last week, occasioned by liquid mop up by the Central Bank of Nigeria (CBN). The volume of excess liquidity in the interbank money market was aggravated last week by inflow of N401.71 billion from matured treasury bills (TBs). 

In response, the CBN on Thursday issued N400 billion worth of secondary market (Open Market Operation) TBs, but sold N533 billion to meet investors demand. This, in addition to N133.49 billion outflow through primary market TB auction, caused average short term interbank interest rate to fall by 150 bpts. Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 149 bpts to 20.86 percent last week from 6.0 percent the previous week. 

Similarly, interest rate on Overnight lending rose by 153 bpts to 22.5 percent on Friday from 7.17 percent the previous week. Analysts, however, projected that this trend will be reversed this week, in response to expected inflow of N277 billion from maturing TBs, and absence of further CBN liquidity mop up through OMO bills. 

(Vanguard)