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Interbank market liquidity defies CRR debit, closes at N612bn

By BusinessNews Staff on February 11, 2014

The amount of idle cash in the interbank money market closed at N612 billion last week.The liquidity surplus was despite debit of banks for cash reserve ratio (CRR) of N583 billion for the month of January.

The CRR represents the portion of total assets banks are mandated to keep as cash in order to meet obligation to customers. Last month, the CBN increased the CRR for public sector deposit to 75 percent, while retaining that of private sector deposit at 12 percent.

The CBN commenced implementation of the increase in CRR on public sector deposit last week. This increased the monthly CRR debit by 461 percent from N102 billion in December to N583 billion in January.

Though this occasioned a 40 per cent decline in interbank liquidity from N1.03 trillion at the beginning of last week to N612 billion on Friday, it however had momentary impact on interbank lending rates.

On Thursday when the CRR debit was implemented, interest rates on Open Buy Back (OBB) or collateralised loan and Overnight loan rose to 13.5 percent from 10.5 percent at the beginning of the week. The rates however receded to 10.5 percent at the close of business on Friday.

Investigation reveals that the impact of the CRR debit was ameliorated by fresh inflow of funds from maturing treasury bills of N181 billion and other sources, which lifted market liquidity from N397.74 billion on Thursday to N612 billion at the close of business on Friday.

Government Securities record 146% subscription

Reflecting the huge amount of idle cash in the interbank market, subscription for government securities (treasury bills) recorded 146 percent subscription last week. Results of trading in treasury bills (TBs) for week show that the investing public demanded for N407.95 billion worth of TBs while the CBN offered N279.28 worth of bills, and allotted (sold) N241.39 billion.

At the secondary market where existing TBs are sold, the public demanded for N85 billion worth of bills while the CBN offered N90 billion and sold N52.11 billion. Interest rates demanded by investors ranged from 12 percent to 13.5 percent, while the CBN accommodated interest rates from 12.2 percent downward.

At the primary market where fresh TBs are issued, the public demanded for N322.95 billion, while the CBN offered and sold N189.28 billion. Interest rates demanded by investors ranged from 10 percent to 13.6 percent, while the CBN accommodated interest rates from 12.34 downward.

External reserves fall $42.5bn

Meanwhile the nation’s external reserves fell by $474 million last week. From $42.988 billion on January 31st, the reserves fell to $42.514 billion on Thursday. Cumulatively, the external reserves had fallen by $1.096 billion from $43.61 billion at the beginning of the year. Analyses reveal that the external reserves persistently declined from January 1st, except on January 20th when it rose marginally to $43.26 billion from $43.24 on January 17th. Last year, it rose from $45.98 billion in January to a peak of $48.85 billion before falling steadily to $43.61 in December.

Naira depreciates in interbank as CBN sells $779.9m

Meanwhile the naira depreciated at the interbank foreign exchange market even as the CBN sold $779.94 million through the Retail Dutch Auction System (RDAS) sessions last week.

Though the official exchange rate and parallel market exchange rate remained stable at N155.75 and N168 per dollar respectively, the interbank market exchange rate however rose to N163.4 per dollar from N162.58 the previous week. This represents 82 kobo depreciation of the naira in the interbank market. Investigations reveal that the naira has depreciated in the interbank by N4.74 kobo or 2.9 per cent since the beginning of the year. It has remained relatively stable at the official market, while appreciating at the parallel market by N5 or 2.8 per cent.

CBN assures investors of naira stability

Notwithstanding the depreciation of the naira at the interbank market, the CBN Governor, Mallam Lamido Sanusi assured foreign investors of the commitment of the apex bank to the stability of the naira. Speaking at the Standard Bank’s West Africa Investors Conference in Lagos on Tuesday, he said the apex bank will continue to defend the naira as long as stable crude oil prices.

Sanusi said, “We have tried
to build a stable environment and for us at the central bank we have been very lucky to have had a very good partner in finance. If you look at government spending in 2013, it really wasn’t much higher than in 2012 and fiscal policy is not in itself loose on the basis of government spending. “The real challenge is that there are things that we can do to block some of the revenue shortfalls that are causing the problem – oil theft and bunkering because we’ve good oil price, we’ve got the output and if you fix that the issues reserves, around currency stability, around fiscal deficit would simply disappear. But government spending itself has not been the problem. It is largely because of the fiscal discipline in the last few years that our tight monetary policy has been able to work.

“ We have been able to bring down inflation to single digit and it has been below 10 per cent since January 2012. It would remain 10 per cent throughout 2014. I know there is speculation about how much money will come into the economy during elections, but how much money is there any way? It is $2.5 billion in the Excess Crude Account. So even if people want to spend money, the money won’t be available. So the risk from that end is not as high as people might think.”

[Vanguard]

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