…Naira settled-OTC futures begins today
…Market awaits N305b budget disbursement this week
The nation’s Deposit money banks at the weekend, raised their cumulative borrowings from the Standing Lending Facility of the Central Bank of Nigeria (CBN) to the tune N420 billion at 14 per cent.
The development was in a bid to beat their respective tightened liquidity position that rocked their operations, as the effect of the $3.5 billion forward trading executed at the first trading, which resulted in the mop-up of about N1 trillion in circulation impacted on the liquidity in circulation.
Meanwhile, as part of the foreign exchange (forex) market liberalisation under the flexible rate policy, the Central Bank of Nigeria (CBN) will kick-start the operations of the Naira-settled OTC FX futures today.
The planned Naira-settled system is non-deliverable forwards, where parties agree to an exchange rate for a predetermined date in the future, without the obligation to deliver the underlying dollar amount on the maturity.
The party that would have suffered a loss with the spot forex rate will be paid a settlement amount in Naira, to ensure that both parties enjoy the rate that had been guaranteed to each other through the transaction.
In the last 12 days, CBN has been on the mop up exercise as a pre-condition to the beginning of the flexible exchange rate policy and has closed in on N1.7 trillion mark.
However, not all banks opted for the facility, as they were required to pledge their treasury bills or bonds holdings as collateral for borrowing. Specifically, the interbank lending rate, particularly the Overnight rate, rose to 60 per cent on Wednesday from 18 per cent on Monday after the take off of the new exchange rate policy.
The overnight rate is the interest rate at which major financial institutions borrow and lend one-day funds among themselves.The development means that for every N1000 lent among the banks, N600 will become the interest payment on the principal sum.
However, the rate eased to eased 20 percentage points to 15 percent at the weekend from 35 per cent on Thursday after some banks approached the central bank’s discount window for short-term cash accommodation, according to Reuters.
Meanwhile there are expectations that a total of N305 billion budget disbursement would hit the system from today, which has brought a stable outlook for interbank lending rates this week.
“Interbank lending rates are seen dropping further next week because of expectations of cash flow from budget disbursement to government agencies,” a trader said.
Similarly, the naira ended the week stable at N281 to the dollar, as the apex bank intervened for a fifth straight day with dollar sales to support foreign exchange liquidity at the interbank market.
A total of $58 million exchanged hands just before market closed, which traders attributed to central bank’s intervention.“We observed that some deposit money banks continued to charge rates close to parallel market rates for dollar transactions on naira debit cards. At the parallel market, the naira traded at N345/$ on most days during the week, save for Wednesday when it appreciated to N335/$.
“We applaud the recent moves by the CBN to liberalise and stabilise the currency market. We expect the interbank rates to trend around current levels of circa N280.00/US$1.00 in the week ahead,” analysts at Afrinvest Securities Limited, said.
Financial system liquidity last week opened at N750.5 billion, with interbank lending rates surging from 17.3 per cent for Open Buy Back and 18.7 per cent for Overnight on Monday to 45 per cent and 51 per cent respectively on Tuesday.
By the midweek, OBB and O/N rates crossed the 50.0 per cent mark to settle at 63.3 per cent and 68.5 per cent respectively. They however, moderated to 30 per cent and 34.4 per cent by Thursday and eventually settling at 19.2 per cent and 21.2 per cent, up 17.6 per cent and 19.0 per cent week-on-week respectively.
“In the week ahead, we believe money market rates will moderate slightly as the May 2016 FAAC allocation hits the system. We also expect the frequency of the special forex intervention auction to reduce and the impact of the debits on liquidity levels tapered, while interbank market remained liquid,” analysts at Afrinvest added.