By Babajide Komolafe
THE inflow of N311.38 billion into the interbank money market this week is expected to prompt a decline in cost of funds in contrast to the sharp increase recorded last week.
Cost of funds rose by over 1,800 basis (bpts) last week following sharp decline in market liquidity to N550 billion on Friday from over N1 trillion on Thursday. The decline in market liquidity was caused by outflow on Friday for FGN bond purchase (N156 billion), and secondary market (Open Market Operations, OBB) treasuring bills purchase of N122.65 billion.
Consequently, interest rate on Collateralised (Open Buy Back, OBB) lending spiked by 1,833 bpts to 20.33 percent on Friday from two percent the previous week. Similarly, interest rate on Overnight lending rose sharply by 1,883 bpts to 21.08 percent from 2.25 percent the previous week.
Analysts projected that this trend will be reversed this week due to inflow of N311.38 billion comprising N131.18 billion worth of maturing primary market TBs, N30.66 billion worth of maturing OMO TBs and N149.14 billion from bond coupon payment. The inflow is expected to cancel out the effect of outflow of N131.58 billion through primary market TB auction by the CBN during the week.
In their projection for the week, analysts at Cordros Securities Limited said: “In the coming week, inflows worth a combined NGN179.80 billion are expected in the system from OMO maturities (NGN30.66 billion) and FGN bond coupon payments (NGN149.14 billion). Barring any significant mop-up by the CBN, we expect the OVN to remain depressed.”
Analysts at Cowry Assets Management Limited similarly said: “In the new week, T-bills worth N162.19 billion will mature via the primary and secondary markets which will more than offset T-bills worth N131.53 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N49.84 billion, 182-day bills worth N10.62 billion and 364-day bills worth N71.07 billion. Hence, we expect the stop rates to decline amid demand pressure.”
On their part, analysts at Afrinvest Limited said: “In the coming week, we expect inflows from OMO maturities worth N30.7bn. Also, we envisage that system liquidity will remain elevated, driving rates lower in the secondary T-Bills market.”