Low liquidity shores up market rates

The assessed low liquidity in the financial market last week, caused money market rates to trend high on all trading days of the week.

The market had opened the week with opening balance of N72.3 billion, causing the Open Buy Back (OBB) and Overnight rates to settle at 35 per cent and 37.5 per cent respectively.

Meanwhile, a month-to-date measurement of performance of currencies in the sub-Saharan Africa showed that the naira was above its peers from South Africa, Ghana, and Kenya.

The development, attributed to the recent volatility witnessed across the global economy, which saw crude oil prices touch as low as $42.6 per barrel, representing -9.5 per cent month-to-date, together with China’s currency devaluation and its market rout.

Domestically, the apex bank’s unrelenting efforts to check speculation on the local unit and conserve the reserves with the use of its demand management policies, saw the interbank market rate remain flat at N199.10/$ since February 2015, shifting the volatility to the parallel market where it has depreciated to a year high of N240/ $.

On Tuesday, the 48-hour requirement for banks to fulfil their foreign exchange obligations to the apex bank, pressured the low liquidity balance at N54.9 billion, causing rates to rise further to 83.3 per cent and 88.3 per cent for OBB and Overnight rates respectively.

The rates reached a peak of 100.8 per cent (OBB) and 105.3 per cent (Overnight) on Wednesday as no major credit was received within the financial system, but reversed on Thursday with net inflow on Standing Lending Facility worth N211.9 billion, which hit the financial system.

The rates, however, crashed at the weekend to 11 per cent (OBB) and 8.3 per cent (Overnight) as a result of the improved liquidity in the system.

“Due to low liquidity at the beginning of the week, average yields rose 0.2 per cent week-on-week from 15.6 per cent to 15.8 per cent in the Treasury Bills market. This week, we expect rates to rise marginally due to the Nigerian National Petroleum Corporation’s withdrawals and probable Open Market Operations auctions,” the analysts said.

Since the beginning of August 2015, the Central Bank of Nigeria (CBN) has supplied dollars to the Bureau De Change (BDC) operators twice a week and has been deduced as tactics to significantly close the spread between parallel market and the interbank market rates, hence the local unit has appreciated 6.2 per cent month-to-date in the parallel market.

Consequently, the Naira, which traded flat at N199.10/$ at the end of the week at the interbank and +6.2 per cent month-to-date at the parallel market outperformed key markets in Africa such as South Africa’s rand at -4.2 per cent; Ghana’s cedi at -6.2 per cent; and Kenya’s Shilling at -1.5 per cent in the month of August.

Specifically, this week, the naira remained steady at the inter-bank market at N199.10/$, while the CBN maintained its intervention rate at N197/$.

In the parallel market, the local unit appreciated to N211/$ on Wednesday and remained till the weekend, following the sale of the greenback by the CBN to the BDCs in order to maintain supply in the parallel market.