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Inter-bank rates to fall on N603.59bn FAAC inflows, N866.73 AMCON bond

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Inter-bank rates are expected to decline this week following Asset Management Corporation of Nigeria’s (AMCON) 3-year bond worth N866.73 billion which will mature on Friday, October 31, 2014, and inflows from Federation Allocation Accounts Committee (FAAC)  worth N603.59 billion.

Also, 129-day treasury bills worth N165.840 billion will be redeemed via open market operations on Thursday, October 30.

“Hence we anticipate that the maturities coupled with residual FAAC inflows (N603.59 billion) will boost system liquidity, resulting in further decline in interbank interest rates”, analysts at Cowry Asset Management Limited said.

Last week, treasury bills worth N96.27 billion were auctioned via the primary market, viz: 91-day bill worth N34.89 billion; 182-day bills worth N30.00 billion; and 364-day bills worth N31.38 billion. Also treasury bills worth N273.24 billion matured consisting of bills of equivalent maturities and amounts with additional maturities worth N176.97 billion via open market operations.

Consequently, the Nigerian Inter-Bank Offered Rates declined for all placement tenors, partly due to the impact of treasury bill maturities and inflows from Federal Accounts Allocation Committee funds worth N603.59 billion. NIBOR for 1 month, 3 months and 6 months buckets declined to 12.39% (from 12.93%), 13.138% (from 13.59%) and 13.94% (from 14.41%) respectively. Also, overnight funds rate moderated to 10.79% (from 10.82%).

On the other hand, no panic for foreign exchange users as there are expectation of dollar sales by oil majors to fund their local currency month end obligations in addition to the Central Bank of Nigeria’s (CBN) defence, which are expected to cushion the pressure on the naira and stabilise it momentarily though.

The naira declined 0.8 percent this month as Brent crude fell to the lowest level in more than four years.

Bloomberg report said further losses would force Africa’s largest oil producer to choose between raising interest rates, eroding foreign-exchange reserves or, eventually, devaluing the currency, according to Exotix Ltd., a London-based investment bank.

Brent crude declined 1.2% to $85.77 per barrel.

It fell to a four-year low of $82.93 on October 16, having closed at $112.60 on June 24. Meanwhile, reserves of the country shrunk to $39.1 billion on October 22, compared with $43.6 billion at the end of 2013.

They still equate to seven months of import cover, which is high enough for the central bank to continue backing the naira, Ayodele Akinwunmi, an analyst at First Securities Discount House Limited in Lagos told Bloomberg.

The naira shed value against the dollar, as elevated demand continued to exert pressure on the USD/naira currency pair – quantity demanded increased week-on-week by 14.88% to USD804.10 million. On Monday, October 20, CBN offered USD500 million (or N77.86 billion) to end users at the Retail Dutch Auction (RDAS) but sold USD499.94 million.

Article Credit: Businessdayonline

Updated 4 Years ago

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Tags:     Inter-bank     AMCON     FAAC     Cowry Asset Management Limited     CBN