CBN to Combat N1.6trn Excess Liquidity in February

Enterprise Network-Treasury Bills Issuance Falls by N1.153 Trillion in One Year The Central Bank of Nigeria

CBN to Combat N1.6trn Excess Liquidity in February

The Central Bank of Nigeria, CBN, is set to intensify its liquidity mop up efforts to deal with excess liquidity of N1.6 trillion expected in the interbank money market this month, amidst rising business confidence over improved macroeconomic conditions during the month.

The Business Expectation Survey conducted by the apex bank in January shows increased optimism in the economy, with overall Confidence Index, CI, for February rising to 62.1 percent from 25.9 percent for January.

“Respondents were optimistic of better economic conditions as their expectations on the growth of the economy rose steadily in the short run with an index of 35.5, 42.7 and 56.4 points for the current month, next six months and next twelve months respectively,” the CBN said.
However, while businesses expect further appreciation of the naira this month, they also anticipate further increase in interest rates. “Majority of the respondent firms expect the naira to appreciate in the current, next and the next twelve months respectively as their confidence indices stood at 23.0, 31.9 and 44.6 points.

“Respondent firms expect borrowing rates to rise in current, next and the next twelve months as the confidence indices stood at 20.0, 6.7 and 7.6 points, respectively.” The outlook on higher borrowing rates is in line with projection of  higher interest rate (yield)  on treasury bills this month as the CBN intensify its liquidity mop up to contend with excess liquidity of N1.6 trillion and sustain attractiveness of  the nation’s financial market to foreign investors.

The outlook on higher borrowing rates is in line with projection of  higher interest rate (yield)  on treasury bills this month as the CBN intensify its liquidity mop up to contend with excess liquidity of N1.6 trillion and sustain attractiveness of  the nation’s financial market to foreign investors.

Meanwhile cost of funds is expected to fall slightly this week in response to inflow of N783.3 billion from maturing TBs. Last week, cost of funds rose sharply as the CBN issued secondary market (Open Market Operations, OMO) TBs to mop up N644 billion from the market.

The outflow cancelled out the impact of N315 billion inflow from maturing TBs causing average short term interest rate to rise by 758 basis points (bpts). Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 760 btps to 18.67 percent last week from 11.07 percent the previous week. Similarly, interest rate on Overnight lending rose by 756 bpts to 19.42 percent last week from 11.86 percent the previous week.

While the apex bank is expected to step up issuance of OMO bills to mop up the anticipated inflow of N783.3 billion this week, analysts at  Cowry Assets Management Limited  expect improved liquidity conditions and moderation in cost of funds during the week.

Confirming the additional injection, CBN’s Director, Corporate Communications Department, Isaac Okorafor said: “Figures of the sales consummated on Friday, February 8, 2019 revealed that the sum of $279, 128,518.66 was injected to meet requests of customers in the agricultural, airlines, petroleum products and raw materials and machinery sectors. The sum of CNY46,924,114.04 was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials”, he added.

While expressing the satisfaction of the Bank’s management at the stability in the different segments of the foreign exchange market, Okorafor attributed the level of stability to the Bank’s transparency in foreign exchange transactions. Reflecting the impact of the increased dollar injection, the naira appreciated in the parallel market and in the I&E window last week.

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