Rates to moderate on FAAC allocations, bond maturities

Following the recent Federation Accounts Allocation Committee (FAAC) allocations expected to filter into the system, as well as expected federal government bond maturities, dealers in the money market anticipate a moderation in interbank lending rates.

Rates settled at 9.5 per cent and 10.0 per cent on Friday, indicating a 4.8 and 5.0 percentage point decline week on week (W-o-W) respectively.

“We anticipate a moderation in interbank lending rates. This week, we anticipate bullish activity on the back of expected boost in financial system liquidity,” dealers from Cowry Assets Management Limited wrote in a note to investors.

A total of N429.127 billion was distributed as federal allocation for the month of February 2017 to Federal Government, state governments and local government councils.

A communiqué issued by the Technical sub-Committee of FAAC, at the end of the meeting held on Tuesday in Abuja, indicated that the gross statutory revenue received for the month is N290.163 billion, which is lower than the N324.990 billion received in the previous month.

Meanwhile, the central bank said on it sold one-year treasury notes at 18.69 per cent, above inflation rate for the second consecutive time in a bid to maintain positive yield and attract investors.

The bank said it raised N83.16 billion by issuing the one-year bill, which it had sold at a yield of 18.55 percent at its previous auction on March 15.

Nigeria forecasts a budget deficit of N2.36 trillion in 2017, half of which it aims to fund through domestic borrowing. It has been trying to keep costs down as it grapples with the country’s first recession in 25 years amid galloping inflation.

Annual inflation in Africa’s biggest economy fell for the first time in 15 months to 17.78 per cent in February but remained outside the central bank single-digit target.

Outstanding total debt rose to N17.4 trillion last year from N12.6 trillion in 2015 and is set to increase further. The government plans to increase public spending by almost 20 per cent this year, funded through borrowing.

The debt office on Thursday said it raised N2.07 billion from a new two-year savings bond sold to retail investors, as it tries to broaden the country’s funding base.

The central bank issues treasury bills twice a month to finance the government’s budget deficit and help lenders manage liquidity and curb inflation.