Money Market rates are expected to trend lower this week as indications emerged that the Open Market Operation (OMO) of the Central Bank of Nigeria maturity, and Bond maturity will boost liquidity in the system.
According to one dealer, in the week ahead, “we expect system liquidity to remain tight at the start of the week but improve towards the end due to scheduled OMO maturity of N53 billion and Bond maturity of N480.4 billion. The CBN is likely to conduct several OMO auctions to mop-up liquidity but we still expect rates to trend lower.”
Nigeria’s interbank lending rate climbed by around 20 percentage points on Friday after the central bank’s sale of dollar forwards to offset a backlog of forex obligations drained cash from the money market.
Also, dealers from Afrinvest said they expect to see improved activity level within the bonds market due to scheduled maturity of the five-year FGN APRIL 2017 bond worth N480.1 billion on April 27, 2017. The bond maturity is expected to boost liquidity in the financial system with positive impact on trading sentiment as bondholders look to take new positions in the secondary market.
The overnight lending rate stood at 50 per cent against 29.33 per cent the previous day because commercial lenders scrambled for cash on Friday to pay for dollar purchase at a central bank foreign exchange intervention auction targeting certain sectors.
Other traders said the cost of borrowing in the interbank money market was likely to fall next week because of expected cash injections from the next round of monthly budgetary allocations to government agencies and repayment of matured treasury bills.
The bank said on Friday it would offer dollar forwards to offset foreign exchange obligations for manufacturers, airlines and fuel importers as part of measures to improve dollar liquidity and support the ailing naira.
The lending rate among commercial lenders opened at 70 per cent on Tuesday, but fell to around 29.33 per cent on Thursday after the injection of cash from matured treasury bills repayment by the central bank boosted liquidity.
Traders said market liquidity had opened at a 206.96 billion naira deficit on Friday, compared with a deficit of 239.53 billion last week, putting the money market under pressure to seek funds to finance their forex and Treasury bill purchases from the central bank.
“The money market is in repo because of the sales of open market operations treasury bills and funding for special foreign exchange auctions by the central bank, putting the market in a tight position,” one senior currency trader said.
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