A total of $9.05 billion, about N1.4 trillion was sold by the Central Bank of Nigeria (CBN) at the Wholesale Dutch Auction System (WDAS) during the third quarter of 2011.
Liquidity position in the financial system was further tightened with the withdrawal of N210.1 billion through the FGN bonds last month.
Going by the increasing demand for foreign exchange (forex), analysts say the action the central bank took last Monday was a step in the right direction. The $9.05 billion sold is 30.22 per cent higher than the $6.95 billion sold at the corresponding period of 2010.
More worrisome is the steep rise in demand for forex. During the third quarter of this year, demand actually stood at $11.65 billion, representing 14.22 per cent shortfall in supply.
During the corresponding period of last year, demand was $8.63 billion.
With persistent demand pressure –a further reflection of the structural deficiencies in the domestic economy, the Central Bank of Nigeria’s corridor of +/- 3 per cent exchange rate management between the Naira/US$ was breached in the month as naira slid further against the UD$ to $1/ N155.020 at the CBN window in the month.
Most significantly, the depreciation of naira was noticeable in the WDAS and Inter-bank market as it recorded appreciable gains in the BDC and Parallel markets. Another situation that could fuel roundtripping.
In the month under review, naira/dollar relationship at the CBN window (WDAS) opened at $1/ N152.81 and closed at $1/ N154.60 representing a loss of N1.79 or 1.17 per cent.
Trading at the 2WQ Inter-bank market opened at $1/ N154.7250 and closed at $1/ N160.2775 representing a loss of N5.55 or 3.59 per cent. Naira/Dollar relationship at the BDC/Parallel market opened at $1/ N167.50 at the Bureau De Change (BDC)/Parallel market, it traded mid-month at $1/ N158 and closed the month at $1/ N160.00 representing a gain of N7.50 or 4.47 per cent.
The widened gap observed between the official and parallel markets mid-July 2011 reduced significantly in the month.
According to the monthly report for September by the Financial Market Dealers Association (FMDA) OF Nigeria, major reasons that could be adduced were the removal of ceilings on the volume of foreign exchange sale to the Bureau de’ Change operators from the autonomous funds weekly by the Deposit Money Banks, and the consistency of CBN in the sale of foreign exchange $100,000.00 to licenced BDCs per week.
The premium between CBN and the Parallel market as at month-end September was N5.40, representing 3.49 per cent.
The month-end figure was less than the IMF benchmark of 5.00 per cent, but poor information management could still give room for speculation and panic buying in the market.
Although the value of FGN bonds issued during the third quarter of this year was high, it felt short of the figures for the corresponding period of last year.
According to the FMDA, cumulatively, a total sum of N210.0billion was mobilised in the third quarter 2011 compared to N330.0billion in third quarter 2010.
It was another round of re-opening in the month as the Debt Management Office (DMO) raised N70.0 billion in a 3-year maturity (18-Mar-2014), 5-year maturity (23-April-2015) and 10-year maturity (30-May-2018) bonds.
The 3-year maturity (18-Mar-2014) attracted public subscription of N76.10 billion at bids range of 7.00 per cent - 12.25 per cent. Allotment of N25.00 billion was done among 56 successful bids at a marginal rate of 10.50 per cent. The re-opening of the 5 year maturity 23-April-2015 attracted public subscription of N56.71 billion.
The allotment of N20.0 billion was done among 24 successful bids at a stop rate of 11.25 per cent.
The range of bids was 7.00 per cent - 12.75 per cent. The 10-year maturity (30-May-2018) attracted public subscription of N50.35 billion at bids range of 7.00 per cent - 13.1112 per cent.
Allotment of N25.00 billion was done among 57 successful bids at a marginal rate of 11.4900 per cent.
Total market subscription in the month was N183.16 billion against N130.43 billion recorded in August and N157.98 billion in July 2011.
The Two Way Quote FGN bond market, in terms of volume moderated downward in the month; but importantly, the market actively traded the 10.50 per cent FGN MAR 2014. Yields on these maturities also varied in relation to the liquidity status of the market.
Inter-bank Rates (NIBOR)
The Monetary Policy Committee for the fifth time in a row increased the Monetary Policy Rate (MPR) by 50 basis points to 9.25 per cent in the month of September, before the steep hike of 275 basis points (bps) to 12 per cent in October.
This singular action further reemphasised the contractionary monetary policy stance of the Central Bank of Nigeria; and the immediate impact on the market was a proportionate movement in rates.
With market liquidity in the range of N100.00bn as a result of the injection from matured bills recorded on September 1, 2011, rates opened on average of 8.500 per cent for call and 9.000 per cent for seven days money.
It gradually rose in response to the intermittent mopping up by CBN through the PMA and OMO window vis-a vis the WDAS window as rates oscillated to close the first week on a weekly average of 9.9950 per cent for Call and 9.950 per cent for 7 days money.
Rates further went up in the subsequent weeks in swift response to the aggressive mop up by CBN.
Within this period, and coupled with the increase in the policy rate, Call/Overnight recorded a weekly average of 11.6083 per cent and 11.9667 per cent for 7 days money in the third week.
With liquidity injection from FAAC (N288.75 billion from N601.023 billion appropriated), rates slowed down in the last week, recorded minor spikes as a result of withdrawal occasioned by foreign exchange funding and Open Market Operations.
The month recorded total outflows of N1.22 trillion – foreign exchange funding of N700 billion – autonomous sources inclusive; bond auction N70.00 billion and Treasury bills auction of N451.54 billion against the total inflows of N757.12 billion through FAAC and Matured bills.
Deposit and Lending Rates of Banks
The saving rate averaged 2.2765 per cent against 2.2894 per cent in the previous month. On the lending leg, rates for the prime structured loan stood at monthly average of 17.7381 per cent; while the normal structured loan averaged 20.4048 per cent from 20.4476 per cent recorded in the previous month.
Treasury Bills (PMA)
Against the backdrop of a greater uncertainty around the inflationary outlook in the near term, the Central Bank of Nigeria sustained its contractionary monetary policy stance to address the inflationary threat in the economy in the near term.
It mopped up N451.56 billion as against N570.60 billion sold in August 2011.
There were activities in both the Primary Market Auction and Open Market Operations in the month. In the previous months, the Central Bank of Nigeria had sold N205.55bn bills in January, N216.92bn in February, N248.05 billion in March, N215.06bn in April 2011, N204.61bn in May and N365.70 billion in June and N307.52 billion in July 2011.
At the first auction in the month, 91 days, 182 days and 364 days bills were allotted at 7.6980 per cent, 8.400 per cent and 9.00 per cent respectively against 7.34 per cent, 8.24 per cent and 9.05 per cent respectively in August.
Allotment of 91 days and 182 days at the second auction was done at 8.249 per cent and 8.830 per cent respectively against 7.50 per cent and 8.58 per cent in August 2011.
Allotment at the last auction of 91 days, 182 days and 364 days bills was done at 10.23 per cent, 10.85 per cent and 11.24 per cent respectively.
At the Open Market Operations, the Central Bank of Nigeria sold N170.99 billion against N432.71 billion in August and N97.78 billion in July 2011.
Subscription recorded in the month was N856.37 billion against N857.71 billion in August and N716.70 billion recorded in July. In the previous months, N754.90 billion was recorded in June, N645.99 billion in May, and N518.014 billion April 2011.
In terms of inflows to the system, the month recorded N469.12 billion against N194.96 billion in August. From the data available, the month recorded a net inflow of N17.56 billion against the net outflow of N375.64 billion recorded in August 2011.