Some financial analysts and market operators have said that the commercial banks are expected to tighten liquidity conditions as political risk heightens, with interbank call rate averaging 20 per cent.
Analysts at Zedcrest Capital disclosed this in their review of money market activities in 2018, saying that the Central Bank of Nigeria would sustain its aggressive Open Market Operation issuance in 2019, with further increase in stop rate.
In the year under review, the average daily system liquidity balance spiked by 11,500 per cent from a negative position of N3 billion in 2017, to a positive position of N340 billion in 2018, whilst the average overnight funding rate also declined significantly by 13,600 basis points to 13.40 per cent in 2018 from 27 per cent in 2017,” the analysts said.
However, the apex bank issued N18.7 trillion in OMO bills in 2018 to mop up inflows from N19.6 trillion OMO maturities, as against N7.9 trillion OMO bills issued in 2017 to mop up N7.5 trillion in OMO maturities. The average OMO stop rate also declined significantly by 510bps from 17.70 per cent in 2017 to 12.60 per cent in 2018.
“We expect the CBN to maintain its current spate of OMO issuance in Q1 2019 as political risks heighten ahead of the forthcoming elections, with the CBN looking to contain inflationary pressures and maintain forex stability. We consequently anticipate a likely increase of 50 to 100bps in the OMO stop rate in the first quarter of 2019, with rates expected to aver-age at 13 per cent for the year,” the analysts noted.
In all, the market operators said that the apex bank was estimated to have spent about N2.36 trillion to mop up N18.7 trillion, through OMO treasury bills, from the interbank money market in 2018.
This was based on 12.6 per cent average stop rate of OMO TBs issued in 2018. The CBN, throughout the year, also maintained tight monetary policy in a bid to ensure exchange rate stability, leading to aggressive liquidity mop up through Open Market Operation treasury bills.
Consequently, the amount of OMO TBs issued by the CBN rose sharply by 137 per cent to N18.7 trillion in 2018 from N7.9 trillion in 2017, while average stop rate fell to 12.6 per cent, from N17.7 per cent in 2017. On the other hand, the amount of OMO TBs that matured during the year rose by 162 per cent to N19.6 trillion in 2018, from N7.5 trillion in 2017.
Funding rate also declined significantly by 13,600 basis points to 13.40 per cent in 2018 from 27 per cent in 2017. The CBN issued N18.7 trillion in OMO bills in 2018 to mop up inflows from N19.6 trillion OMO maturities, as against N7.9 trillion OMO bills, issued in 2017 to mop up N7.5 trillion in OMO maturities. The average OMO stop rate also declined significantly by 510bps, from 17.70 per cent in 2017, to 12.60 per cent in 2018.
