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Interbank rates to decline on maturities, expected N420bn FAAC October inflow

EXPECTATION are high in the financial system that despite treasury bills auctions worth N117.176 billion this week, N71.326 billion worth treasury bills maturities and  N420 billion October Federation Accounts Allocation Committee (FAAC) disbursements will keep rates low.

According to dealers at Cowry Assets Management Limited, treasury bills worth N71.326 billion will mature via primary market,viz:182-daybills worth N18 billion and 364-day bills worth N53.326 billion. These they say, will be more than offset by treasury bills auctions worth N117.176billion via the primary market, viz:91-daybills worth N45.85billion, 182-day bills worth N18 billion and 364-day bills worth N53.326 billion.

However, “we anticipate improvement in financial system liquidity, and resultant decline in interbank rates as a result of the N420 billion October Federation Accounts Allocation Committee (FAAC) disbursements, to the three tiers of government,’ the assets managers said.

One trader said half of the amount distributed, which belongs to states and local governments, is expected to pass through the banking system, adding that “this week, we expect bargain hunting activity at the OTC bond market, and resultant decline in yields, on anticipated boost in financial system liquidity.”

Some dealers have therefore recommended that investors go long on risk free bond instruments, stressing that the bonds market will likely stay calm on the back of T-bills auction scheduled for next Wednesday.

“We are anticipating that as soon as the budget allocation hits the system, the central bank will issues open market operations (OMO) bills to mop-up part of the cash from the system,” one dealer said.

The interest rate at the interbank market is expected to initially drop below the benchmark interest rate early this week, but should pick up again as the central bank sells treasury bills to reduce liquidity in the system.