Inter-bank rates to rise as lenders withdraw funds for forex, bond transactions

Inter-bank rates are expected to rise this week following bond transactions and withdrawal of funds for foreign exchange auction by banks, analysts have said.

The Debt Management Office (DMO) will auction N65 billion in three local currency debt issues on Wednesday, December 17, 2014 (all re-openings), viz: N10 billion in the 3-year, 13.05% FGN August 2016 note; N30 billion in the 10-year, 14.20% FGN March 2024 paper; and N25 billion in the 20-year, 12.1493% FGN July 2034 bond, according to a report by Cowry Asset Management Limited.

Meanwhile, the apex bank will auction treasury bills worth N190.92 billion via the primary market, viz: 91-day bill worth N33.27 billion; 182-day bills worth N50.03 billion; and 364-day bills worth N107.62 billion, while bills of equivalent maturities and amounts will be redeemed on Thursday, December 18.

Last week, treasury bills worth N160.61 billion (viz: 73-day bills worth N8.97 billion and 134-day bills worth N151.63 billion) matured via open market operations on Thursday, December 11, 2014. The resultant liquidity boost cooled overnight funds rates at the interbank market to 25.38% (from 25.42%). Overnight funds rate reached an intra-week high of 61.43%. Nevertheless, Nigerian Inter-Bank Offered Rates for the 1 month, 3 months and 6 month tenors, advanced, respectively, to 17.10% (from 15.55%), 17.28% (from 15.86%), and 17.53% ( from 16.44%).

At the foreign exchange market, demand for dollar is expected to spike at the official market as end users front load their demand to beat CBN customary closure of the market in the 3rd week of December for Christmas. Pressure in the parallel market may, however, moderate due to supply from Diaspora Nigerians on Yuletide holidays.

Last week, the naira – U.S. dollar rate remained steady at N168/USD as the Central Bank of Nigeria offered USD350 million but sold USD349.75 million (N58.75 billion) – a 23.89% decline from the USD459.51 sold last week, at the twice weekly Retail Dutch Auction (RDAS). However, the local currency tumbled against the U.S. dollar at the alternative market segments. At the inter-bank market, the local currency closed at N182.00/USD – a 1.00% (or N1.80) depreciation from the previous N180.20/USD last week. This occurred despite sales by oil multinationals to local lenders – USD200 million was sold by NNPC while USD11 million was auctioned by Addax Petroleum. The local currency depreciated at the bureau de change segment by 0.80% (or N1.50) to N188/USD from the previous week’s N186.50/USD while at the parallel market the naira also fell to N189/USD from the previous week’s N187.50/USD.