Cost of funds in the interbank money market is expected to fall this week in response to inflow of N330 billion from maturing treasury bills (TBs).
Cost of funds rose sharply last week following outflow of funds for retail foreign exchange auction and N100 billion commitment to the secondary market (Open Market Operation, OMO) TBs conducted by the Central Bank of Nigeria (CBN) in the previous week.
The outflow which exceeded inflow of N18.5 billion from matured OMO TBs prompted average short term interest rate to spike by 578 basis points (bpts).
Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 517 bpts to 7.42 percent on Friday from 2.25 percent the previous week. Similarly, interest rate on Overnight lending rose by 558 bpts to 8.33 percent on Friday from 2.75 percent the previous week.
Analysts however projected that this trend would be reversed this week as the interbank money market receive liquidity boost of N330 billion dollars from maturing TBs. The inflow which comprise N296.95 billion from maturing OMO TBs and N33.84 billion from maturing Primary Market TBs, exceeds the outflow of N33.84 billion via primary market TB auction to be held by the CBN this week.
Making this projection in the company’s financial market outlook for this week, analysts at Cordros Securities said: “In the coming week, we expect the Overnight rate to contract, as inflow from OMO maturities N296.95 billion come into the reserves rose to $34.085 billion on May 6th from $33.427 billion on April 29th, translating to $658 million increase.
The increase in reserve was enhanced by the $3.4 billion Rapid Finance Instrument (RFI) loan granted to Nigeria by the International Monetary Fund (IMF) last month.
Meanwhile the Naira appreciated against the dollar in both the parallel market and in the Investors and Exporters (I&E) window last week.
In the I&E window, the naira appreciated slightly by five kobo as the indicative exchange rate dropped to N387.25 per dollar on Friday from N387.3 per dollar the previous week.
In the parallel market, the naira recorded sharp appreciation of N20 as the parallel market exchange rate dropped to N430 per dollar on Friday from N450 per dollar the previous week.