Liquidity at the Nigerian money market remained tight with the Central Bank of Nigeria (CBN) mop up of N2.185 trillion from the system through Open Market Operations (OMO) auctions which it held all through the month of January 2018. This is 41.7 per cent higher than N1.542 trillion it mopped up through OMO auctions in December 2017. In January it held OMO auctions almost every day taking out N344.47 billion and N553.17 billion in the first and second week of the month.
It also mopped up N369.41 billion in the third week, N477.92 billion in the fourth week and N440.21 billion in the last three days of the month. Traders said the constant OMO auctions of the CBN ensured a tight liquidity with money market rates, particularly overnight rates expanding.
Last week, the overnight lending rate rose by 683 basis points to 12.17 per cent, against previous week’s close of 5.33 per cent, as outflows via OMO and foreign exchange sales valued at N491.06 billion and $210 million, outweighed inflow of matured OMO bills and coupon payment on the 27-JAN-2021 bond, valued at N22.33 billion and N49.61 billion, respectively.
The value of the naira had remained relatively stable at all the windows. The parallel market had been the most stable with the naira moving on very few occasions to N365 to the dollar from N364 which it maintained all through the month.
At the Nigeria Autonomous Foreign Exchange (I&E) window also referred to as the Investors and Exporters window, the value of the naira ranged between N359 and N360 closing at N360.70 to the dollar on Friday last week. Trades in the I &E window declined last week by 10.68 per cent to $1.06 billion, compared to $1.19 billion recorded in similar period the previous week.
The apex bank had intervened at the foreign exchange market only once last week injecting $210 million into the forex market, comprising $100 million, $55 million, and $55 million disbursements to the wholesale, SMEs, and invisibles windows, respectively. Traders said sentiments in the Nigeria Treasury Bills secondary market were bearish due to tight system liquidity, while demand remained strong in the primary market, wherein investors focused on declining inflation rate, imminent monetary easing, and healthy offshore participation.
Investors were also upbeat in the bond market, prompted by the strengthening expectation of monetary easing, continued moderation in inflation rate, and sustained foreign investor participation.
Analysts said they expect buying momentum in the TBills primary market to remain strong, as investors continue to take cues from improving inflationary conditions, imminent monetary easing, and buoyant activities from the offshore community.
Analysts at Cordos Capital noted that the apex bank’s frequent OMO auctions however, remains the key upside risk, adding that “our theme on the bond market favours lower yields, as expected monetary easing, improving inflationary conditions, and the FGN’s new debt management strategy will remain key drivers of yield movement in the near-to-medium term.