Government securities record 156% over-subscription

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The volume of idle cash in the interbank money market rose last week to N408 billion, triggering 156 percent excess demand for government securities. Financial Vanguard investigations revealed that the volume of idle cash (excess liquidity) in the interbank money market rose by 32 per cent from N277 billion the previous week, to close at N408.3 billion last week. The sharp increase was driven by fresh inflow of N141 billion from statutory allocation funds, and N144 billion from payment of matured treasury bills.

Consequently, investors demanded for N498 billion worth of government securities (treasury bills), representing 156 per cent higher than the N194 billion offered for sale by the Central Bank of Nigeria (CBN). At the secondary market where existing bills are traded, investors demanded for N394 billion worth of bills while the apex bank offered N50 billion, but did not sell any bill. At the Primary market, where fresh bills are sold, investors demanded N394 billion worth of bills, while the apex bank offered and sold N144 billion. Also reflecting the impact of the improved liquidity, cost of funds remained relatively stable during the week between 2.0 and 2.5 per cent. Meanwhile the Central Bank of Nigeria (CBN) spent about $700 million to defend the naira in May. However, the naira depreciated last week to N355 per dollar in the parallel market, due to increased speculation, occasioned by anxiety over the delay in the release of the guidelines for the 鈥榝lexible exchange rate policy鈥, of the CBN. According to analysts at Afrinvest Plc, the naira might depreciate further in the parallel market this week, should the apex bank continue to delay the release of the guidelines for the new policy. In the company鈥檚 review of developments in the foreign exchange market last week, they stated: 鈥淭he market had expected that the guidelines for the new flexible exchange rate regime would be communicated early enough to restore normalcy to the foreign exchange market. But the delay by the CBN on the specifics of the new foreign exchange (FX) policy further fuelled speculation within the BDC/parallel segment of the FX market as the naira depreciated by 1.4 percent against the dollar to close at N355.00/$1 relative to previous week鈥檚 close of N350.00/$1 鈥淎t the official/interbank segment however, the Naira remained stable for the week as the CBN again intervened at the official rate of N197.50/$1. This makes the third consecutive auction the CBN conducted at the rate of N197/$1 or N197.50/$1 after the market had anticipated that the Apex Bank would adjust its intervention rate (in order to save the external reserves) subsequent to NNPC鈥檚 announcement of a guided deregulation of the downstream petroleum sector that pegged the FX rate for petroleum importers at N285/$1. 鈥淲e analyzed the movement in foreign exchange reserves for the month of May-2016 and found out that it closed 2.6 percent ($26.4bn) lower relative to the level ($27.1bn) in April-2016, implying that an approximate average of $0.7bn was used in defending the currency in May. In the interim, pending the clarity on the new FX policy, we opine that the pressure at the parallel segment will persist.鈥

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