CBN to mop-up N238bn as NBS releases June inflation data

THE Central Bank of Nigeria (CBN) will this week continue its tight monetary policy by issuing treasury bills to mop-up N238 billion.

Meanwhile the National Bureau of Statistics (NBS) will also this week release the inflation data for June, which is expected to sustain the downward trend for the fourth consecutive months.

Financial Vanguard findings revealed that the CBN, in a bid to forestall build-up of excess liquidity in the interbank money market, which could lead to upward pressure on inflation and exchange rate, will issue treasury bills worth N238.7 billion. This comprises 91-day bills worth N12.295 billion, 364-day bills worth N129 billion and 353-day bills worth N97.438 billion.

This was designed to cancel out the impact of inflow of N204.96 billion coming into the system this week via payment of matured treasury bills.  The mature treasury bills comprise  91-day bills worth N36.786 billion,  182-day bills worth N39.175 billion and 364-day bills worth N129 billion.

Last week the interbank money market experienced wide swings in cost of funds, with average short term interest rate rising above 25 per cent at the beginning of the week, due to liquidity outflow for participation in CBN’s dollar auctions, before falling to single digit level at the close of the week, due to liquidity inflow of N89.9 billion from payment of matured treasury bills.

Data from the Financial Market Dealers Quote (FMDQ) revealed that interest rate on collateralised lending rose from 15 per cent previous week to 25.33 per cent on Monday, but dropped to 9.0 per cent at the close of business on Friday. Similarly, interest rate for overnight lending rose from 15.25 per cent the previous week to 28.17 per cent on Monday, but dropped to 9.75 per cent at the close of the week.

This trend according to analysts at Afrinvest Plc may persist this week due to the liquidity mop-up by the CBN. “We expect the CBN to continue with its aggressive Open Market Operations (OMO) mop ups while Open Buy Back (OBB)  and Overnight (OVN) rates remain in the double digit band”, they said.

Naira appreciates as CBN sustains intervention: The naira last week appreciated in the parallel market and the Nigeria Autonomous Foreign Exchange Market (NAFEX).

The naira appreciated by 50 kobo in the parallel market as the exchange rate dropped to N367 per dollar at the close of business on Friday, from N367.50 per dollar the previous week. The naira recorded a bigger appreciation of N2.99 in NAFEX, as the indicative exchange rate dropped from N365.02 per dollar the previous week to N362.83 per dollar at the close of trading on Friday.

Meanwhile the CBN continued its intervention in the interbank market by injecting $142.5 million on Monday. Analysis of the intervention revealed that$100 million was sold  to dealers in the wholesale segment, while it  $23 million  was sold to the Small and Medium Enterprises (SMEs) segment. It also sold N19.5 million to those requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA).

Also analysts at Cowry Assets Management Limited have attributed the improvement in local content in the manufacturing sector to the effectiveness of the CBN’s forex policy. Quoting a report by the Manufacturers Association of Nigeria (MAN), they noted that local content rose   to 53.17 per cent in 2016 from 48.75 per cent and 47.18 per cent recorded in 2015 and 2014 respectively.

They stated that: “This is an affirmation of the foreign exchange policies of the Central Bank of Nigeria, particularly its June 2015 policy which aims at encouraging local sourcing of raw materials by manufacturers by excluding importers of certain goods with local substitutes from accessing foreign exchange from the Nigerian foreign exchange markets.

“The foreign exchange policy was also intended to enable conservation of scarce foreign exchange as well as boosting employment generation in the country. We opine that, should the external sector remain relatively healthy on the back of favourable and sustainable crude oil price levels, the positive impact of the policy would be more sustainable, and manufacturers will be able to transfer the benefit of their cost savings to the final consumers via lower output charges in a competitive environment in the short to medium terms.”

NBS to release June inflation data: Ahead of the release of inflation data for June by the National Bureau of Statistics (NBS) this week, most analysts have projected that the inflation rate will maintain the downward trend of the four previous months. The inflation rate rose steadily for 18 months reaching a peak of 18.72 per cent January this year. Since then it had been on a downward trend, falling to 16.25 per cent in May.

While analysts at Financial Derivatives Company (FDC) and FSDH Merchant Bank projected lower inflation rate of 16.1 per cent and 15.64 per cent respectively for  June, analysts at Afrinvest however projected inflation rate will rise moderately to 16.4 per cent in June.

According to the Afrinvest analyst, “We forecast Year-on-Year (Y-o-Y) Headline Inflation for June to marginally increase by 15 basis points (bps) to 16.4 per cent as we expect sustained pressure on food prices to keep Month-on-Mont (M-o-M) Consumer Price Index (CPI) growth elevated at 1.8 per cent.