N234bn Paris Club refund improves market liquidity as interbank rates trend below policy rate at 5.25%

Nigeria’s money market rates, in particular, interbank overnight rates, fell week-on-week by over 900 basis points to 5.25 percent Wednesday, a comfortable region below Central Bank of Nigeria (CBN) policy rate of 14 percent.

Market analysts say improved market liquidity was driven largely by the release of the second tranche of Paris Club refund to the 36 states and the Federal Capital Territory, which helped to keep rates low.

Interbank overnight money traded at 5.25 percent, while intra-day NIBOR was at 6.25 percent, just as open buy back (OBB) rate was 4.83 percent.

There has been volatility in rates in recent months, rising as high as 126 percent in the second week of June, which analysts at the time blamed on liquidity squeeze and hedging, as investors were awaiting the signing of the 2017 budget before taking positions.

Since the signing and release of some component of the capital budget, rates have trended downward, but the release of the Paris Club refund further drove the rates to current levels, Wednesday.

At the foreign exchange segment of the market, the Nigerian naira weakened 3.0 percent, week-on-week against the United States dollar at the interbank, closing N315 to the dollar but stable at the parallel market, hovering between N367 – 370 in the last four weeks, despite volatility.

The subdued volatility in the fx market, according to analysts is as a result of the continued intervention of the Central Bank of Nigeria, which has tamped rates within five basis points radius and engendered convergence of rates in the various windows at the market.

A major plus for the CBN is the investors and exporters FX window, as well as the new FX window – the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), which equally supported the foreign exchange market liquidity and access with over $2.5 billion inflows.

With the fresh release of the second tranche of N243.79 billion, the amount so far disbursed to states as refund under the Paris Club loan is now N760.17 billion.

The refunds are in partial settlement of long-standing claims by state governments relating to over-deduction from their allocations from the Federation Account for external debts service arising between 1995 and 2000.

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