The Nigerian Interbank Offered Rates (NIBOR) climbed to an average of 10.50 per cent last week, as liquidity gradually decreased on funding for treasury bills and foreign exchange purchases.
System glitches at the central bank, which disabled access to banks' credit balances, also impacted transactions on the interbank market in the last two trading sessions of the previous week, Reuters stated.
According to analysts at Afrinvest Securities Limited, the interbank money market commenced the week with a credit balance of N510 billion and closed with a lower credit balance of N311 billion.
The open buy back (OBB) and overnight rates traded within the bands of 10.2 per cent and 10.7 per cent.
The market received huge outflows of N244.15 billion, N70.56 billion and N97 billion for open market operations, treasury bills and Retail Dutch Auction System (RDAS) auctions respectively despite inflows of N90 billion for OMO maturities.
“The treasury bills market was bearish during the week and closed the week flat. Activities were driven by the primary market Auction. We continue to see short to mid tenor bills trade actively, while experiencing volatile swings,” Afrinvest Securities added.
It anticipated inflows of OMO bills totaling N114.8 billion and sales of Debt Management Office totaling N100 billion, as well as the issuances of OMO to mop up liquidity.
"We have been trading blindly because of issues with the system whereby we could not access our credit balance with the central bank," one dealer told Reuters.
The OBB closed at 10.50 percent, 1.50 percentage points below the central bank's benchmark interest rate of 12 per cent. Also, the overnight placement rate similarly rose to 10.50 percent from 10.25 per cent the preceding week.
Traders said rates could climb further this week as the NNPC prepares to recall a portion of its deposits with lenders to its account with the central bank.
NNPC, which accounts for the bulk of foreign exchange traded on the interbank market was said to have sold about $200 million to some lenders with the naira proceeds from the forex sales expected to be withdrawn from the banking system to its accounts with the central bank.
The supply-demand gap at the forex market tightened during the RDAS auction, reflecting neutral investor sentiment.
The Central Bank of Nigeria (CBN) auctioned a total of $650 million in the week. However, only a total of $621.9 million was successfully sold. The marginal rate during both auctions remained unchanged at N155.73 per dollar.
At the interbank, the naira appreciated by 35 kobo to close at N162.35 to a dollar. According to Afrinvest, dollar supply from the NNPC came in strong, amidst improved domestic oil and gas production.
On the other hand, the BDC segment of the forex market stabilised during the week as the central bank maintained its stance on the changes to the minimum capital requirements for the sub-sector.
The central bank had extended the deadline for compliance with thenew licensing requirementsofBDCs to July 31, 2014. Also, theCBN announced that interestwillbepaidonthemandatorycautionary deposit of N35 million based on banking industry’s prevailing saving accounts rate.
The bond market commenced last week bearish as various maturities experienced huge selloffs driven by the reduction in market liquidity.
Market liquidity was moderated by the CBN’s OMO auction.
Subsequently on the second trading day, the decline in yields was revered, albeit temporarily. The bond market was volatile last Wednesday as yields inched higher, on the back of the DMO’s release of the final figure on offer at the bond auction causing dealers to position ahead of the auction.
However last Thursday, yields moved in mixed directions as the shorter end of the curve was relatively more bullish. But on the last trading day, the short to mid-term instruments witnessed significant selling pressure as yields picked a few notches – and averaged at 10 basis points.
The SEPT 2014 and APR 2015 instruments retained investors’ interest, losing 70 basis points and 40 basis points respectively.
“We anticipate the current high level of liquidity in the system will deliver a push on yields bring the marginal stop rate at the bond auction to the 11 to 12 per cent range,” Afrinvest added.