Nigerian Banks’ average opening position averaged N309.57 billion in the first half of November, 50.29 percent lower than the average of N622.71 billion in the first half of October.
Industry data shows that throughout the review period, there was only one Open Market Operation (OMO) sales worth N77.2 billion.
Analysts from Financial Derivatives Company (FDC) noted that the decline in liquidity was due to the effort by the Central Bank of Nigeria (CBN) to curb inflation through the use of orthodox monetary policy tools.
This led to a spike in average short-term interbank rates (NIBOR) by 1582 basis points (bps) to 17.27 percent from 1.45 percent in the first half of October.
During the review period (November 1 to15), three primary market auctions were conducted as opposed to only one held in the first half of October.
A total of N310.67 billion was allotted, 749.75 percent higher than the sum of N36.56 billion in the first half of October.
At the primary market, yields rose by an average of 557bps across the 90-day, 182-day and 364-day tenors to 7.00 percent per anum (p.a.), 11.00 percent p.a., and 16.75 percent p.a., respectively.
The FDC analysts stated that postponement of the Monetary Policy Committee (MPC) meeting alongside other policy contradictions is expected to intensify concerns and uncertainties among investors.
Consequently, investors could adopt a wait-and-see approach resulting in a decline in foreign investment in Nigeria. This could weigh on the country’s external reserves and limit the CBN’s ability to support the naira, fostering its depreciation in the near term, the analysts stated.
Similarly, money market liquidity is expected to remain constrained as the CBN intensifies its attempts to control inflation. Although the MPC is yet to determine the date of its next meeting, the persistently high inflation (now at 27.33 percent) and increased currency pressures raise the prospect of a tighter monetary policy stance. Consequently, the cost of borrowing rises, which will likely slow money market activity in the near term.
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