Monday, February 26,2018
FINANCIAL market activities will this week be influenced by the release of data for the country’s Gross Domestic Product (GDP) for Fourth Quarter 2017 (Q4’2017) and Full year 2017 (FY 2017) by the National Bureau of Statistics, inflow of N369 billion into the interbank money market as well as liquidity mop-up by the Central Bank of Nigeria (CBN). According to the NBS data release calendar, the GDP for Q4’ 2017 and FY 2017 are to be released tomorrow. Among other things the data will confirm the strength of the country’s recovery from recession, as indicated in the GDP data for Q2 and Q3 2017, as well as the overall performance of the non-oil sector during the year.
According to analysts at Lagos-based Afrinvest Plc, the non-oil sector is projected to grow marginally by 0.6 percent in the Q4’ 2017 while the oil sector is projected to grow at 13.6 percent, leading to further GDP growth of 1.46 percent for Q4 2017. Meanwhile, the downward trend in cost of funds in the interbank money market in the last two weeks may not be sustained this week, due to expected upbeat in the liquidity mop-up operations of the CBN. Last week, the apex bank conducted two secondary market (open market operations, OMO) Treasury bills (TBs) auctions with little success. While the OMO auction held on Monday recorded zero patronage, the N80 billion OMO TBs offered on Thursday was undersubscribed as the apex bank could only sell N67.7 billion. Market liquidity however received a boost on Wednesday with inflow of N56.3 million from matured TBs.
As a result, cost of funds moderated downward for the second consecutive week with interest rate on Collateralised lending (Open Buy Back, OBB) falling by 670 basis points (bpts) to 11.5 percent on Friday from 18.17 percent the previous week. Also, interest rate on Overnight lending dropped by 710 bpts to 12.4 percent on Friday from 19.5 percent the previous week. Market analysts, however, expressed little confidence that this trend will continue. This week the market is expected to enjoy inflow of N369.4 billion from matured TBs and inflow from statutory allocation funds expected to be over N500 billion. The impact of these inflows could, however, be subdued by outflow of N259.9 billion through primary market TB auction, as well as aggressive issuance of OMO TBs by the apex bank to mop up the liquidity. In spite of this, analysts at Lagos based Cowry Assets Management Limited were optimistic of further decline in cost of funds, while analysts at Afrinvest projected stability.
“In addition to the anticipated FAAC disbursements, we expect moderation in interbank lending rates amid expected ease in financial system liquidity”, said analysts at Cowry Assets. “In the coming week, despite an OMO maturity of N109.4 billion on Thursday, we expect money market rates to remain at similar levels as the CBN is anticipated to mop-up the liquidity via OMO auction”, projected analysts at Afrinvest. CBN injects $531m as I&E rises by 30% On the foreign exchange scene, the CBN increased its weekly intervention in the forex market to $531 million this week. In addition to the regular weekly intervention of $210 million sold in the interbank foreign exchange market on Monday, the apex bank conducted Retail Secondary Market Intervention Sales (SMIS) on Friday through which it sold $321.4 million. According to the Acting Director, Corporate Communications at the CBN, Mr. Isaac Okorafor, the $210 million intervention on Monday comprised $100 million offered to authorized dealers in the wholesale segment of the market, $55 million allocated to the Small and Medium Enterprises (SMEs) and $55 million for customers in need of foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others. He further disclosed that the $321.4 million sold via the Retail Secondary Market Intervention Sales (SMIS) on Friday was for requests in the agricultural, airlines, petroleum products and raw materials and machinery sectors. Meanwhile the volume of dollars traded in the Investors and Exporters (I&E) window of forex market rose by 30 percent last week, while the naira depreciated by 34 kobo in the window. Data from the Financial Market Dealers Quote (FMDQ) showed that the window recorded turnover of $929.75 million last week, up by 30 percent from $716.5 million recorded the previous week. As a result the year-to-date turnover rose to $9.3 billion at the end of last week from $8.37 billion the previous week. However, in spite of the increased dollar supply, the naira depreciated by 34 kobo as the indicative exchange rate rose to N360.7 per dollar last week from N360.36 per dollar the previous week. The naira however appreciated in the parallel market by N1 as the market exchange rate dropped to N362 per dollar last week from N363 per dollar the previous week.