* Declines to N1.78tr in September
Due to the liquidity mop up by the Central Bank of Nigeria (CBN) through Open Market Operations (OMO) and Treasury bill auctions, the Nigerian currency, Naira, in circulation has declined to N1.78 trillion in September of 2017.
The OMO sales last Friday alone, forced the Open Buy Back (OBB) and Overnight (OVN) rates to soar, hence, most banks resulted to borrowing due to lack of liquidity to meet their allocations.
However, in September, the apex bank sold OMO bills worth N599.47 billion, as against N960bn offered in August 2017.
The N1.78 trillion currency in circulation is the second lowest, after N1.76trn in July and N1.87trn in June, as the apex bank continued to mop up excess liquidity in a bid to reduce money supply in the nation’s economy.
According to the CBN, Naira in circulation was estimated at N1.86trn in August 2017, 5.6 per cent increase over N1.76 trillion in July.
The currency in circulation, which is the physical money used for transactions between consumers and businesses, had opened 2017 at N1.99trn and closed in February at N1.97trn.
CBN on its official website disclosed that N1.98trn and N1.97trn was in circulation in March and April respectively, as March was the highest Naira in circulation in the economy.
The data on the CBN’s website revealed that currency in circulation moved to N1.89trn in May, representing the highest naira in circulation reported in 2016.
Meanwhile, analysts at Cordros Capital said, “overnight money market rate expanded by 583 basis points to 14.25 per cent, compared to last month close of 8.42 per cent, following substantial outflows via OMO bills worth N599.47bn in September, as against N960bn offered in August, while Treasury Bill auctions and Bond auctions were worth N75bn and N108.78bn, respectively.
“Notwithstanding significant inflows from matured OMO bills worth N559.47bn and budgetary allocations to state and local governments worth N228.7bn, system liquidity closed in the deficit (N150.35bn), compared to N250.41bn surplus it closed in the previous month.
“During the month under review, the overnight lending rate ranged between 9.33 per cent and 38.00per cent, compared to the previous month, wherein rates hovered between 5.50 per cent and 107.75per cent.”
The September report by Cordros Capital explained that, “Notwithstanding the expected improvement in system liquidity from maturing OMO bills worth N514.37bn and budgetary disbursement to state and local governments, we expect the overnight rate to remain elevated, with more money likely to leave the system via OMO, bond and T-bill auctions.”
Daily Times, however, gathered that the OMO auction may also have contributed to investors remaining fairly profitable in the bond market last Friday with the June 2019 maturity date, gaining the highest in yield with 73bps to 15.03 per cent.
Although the yields on the 5yr and 7yr benchmark bonds were flat at 15.83 per cent and 15.07 per cent respectively, yield on the 10yr benchmark bond declined by 12bps to 15.08 per cent.
Meanwhile, analysts expect activities in fixed income this week to be influenced by liquidity levels and foreign investor participation.
An OBB transaction is usually sealed between dealers of different banks and settlement is made at Central Bank where bills are transferred from the borrower’s bills holding to the lenders bills portfolio.
On the other hand, funds equivalent to the face value of the treasury bills is moved from the account of the lender to the borrower’s current account with the CBN.