CBN to sustain liquidity mop up as N172bn hits interbank market

Last week, the apex bank mopped up N166 billion by issuing secondary market (Open Market Operations, OMO) treasury bills (TBs). The resulting outflow, which offset inflow of N46.25 billion from matured TBs occasioned 660 basis points (bpts) increase in average short term cost of funds in the interbank money market last week.

Data from FMDQ showed that interest rate on collateralised (Open Buy Back, OBB) lending rose by 643 bpts to 16.29 percent last week from 9.86 percent the previous week. Similarly, interest rate on Overnight lending rose by 672 bpts to 17.29 percent last week from 10.57 percent the previous week.

Analysts at Lagos based investment firm, Afrinvest projected that this trend might persist this week due to expectation that the apex bank will conduct OMO auction to mop up N172 billion inflow from maturing TBs.

They said: “In the coming week, we expect instruments worth a combined N172.5 billion to mature on the 1st (N109.7 billion) and 2nd (N62.8 billion) of May, which should enhance system liquidity in the shortened week. Hence, we anticipate an OMO auction from the CBN at the start of the week, given the long position of the system, as well as another auction when the financial market re-opens on the 2nd of May to manage system liquidity.”