Market Fails to Respond to Stimuli, Reserves Down, Naira Weak, Rates High

The objective of the Central Bank of Nigeria (CBN) is far from being achieved. In spite of efforts by the central bank to maintain a stable naira, the local currency weakened further by the end of September.
The meaning is that, the country’s external reserves is being sacrificed in vain and the resultant interest rates which have climbed as a result of the policy is mere punishment for the real sector for no gain either.
It is however hoped that the reintroduction of the retail Dutch auction may help contain the vices of scrupulous financial institutions that have been making unmerited profits from round tripping foreign exchange.
Data collated by the Financial Market Dealers Association of Nigeria (FMDA) shows that the interbank market was characterized by liquidity squeeze in the system arising from withdrawals traceable to foreign exchange funding at the CBN’s window and deductions relating to the recently introduced 50 percent Cash Reserve Requirement (CRR) on Public sector deposits and 0.5 percent Asset Management Corporation of Nigeria (AMCON) sinking funds.
Interbank lending rates inched up to close the first week at (19.00 percent, 19.29 percent and 19.54 percent) for call, 7 days and 30 days respectively as N242.75 billion Cash Reserve Requirement (CRR) debit and N81.78 billion WDAS debit slashed liquidity from its peak level of N268.27 billion to N39.87 billion as reflected in the Net opening cash balances at the beginning and close of the week.
However, cost of fund further closed higher for the second week at (23.58 percent, 21.45 percent and 20.70 percent) for call, 7 days and 30 days respectively as system withdrawals through N93.45 billion foreign purchases at Wholesale Dutch Auction (WDAS) window and N57.73 billion bond auction drained liquidity injections via N147.05 billion net inflows from Open Market Operation (OMO) bills.
In the third week, rates spiked temporarily to (55.83 percent, 42.63 percent and 36.96 percent) for Call, 7 days and 30 days respectively mid-week to record its highest level since inception in 1998, as liquidity dearth deepened with Net opening cash balance at negative figure of N127.17bn on system withdrawals via wDAS and Direct foreign exchange sales debit while the planned deduction of 0.5 percent for AMCON sinking funds further heightened liquidity pressure. However, rates retreated swiftly to close the week at (15.66 percent, 15.70 percent and 16.04 percent) for Call, 7 days and 30 days respectively as the apex bank relaxed its August 1 2012 policy temporarily to accommodate simultaneous access to its lending and wDAS window in order to ease market liquidity challenges.
NIBOR firmed around standing lending facility (SLF) rate (MPR+2 percent) to close the fourth week at (14.16 percent, 14.50 percent, and 14.87 percent) for Call, 7 days and 30 days respectively, as N36.77 billion net inflows from matured OMO bills and expectation of Federation Account Allocation Committee (FAAC) fund disbursement moderate cost of funds despite liquidity outflows via N93.48 billion WDAS debits and N165.00 billion Nigeria National Petroleum Corporation ( NNPC) withdrawals.
However, NIBOR slumped to close the month at (10.75 percent.
The wholesale market for foreign exchange experienced increased market demand compared to the previous month. The apex bank offered $2,800.00 billion and sold $2,625.22 billion in relation to $2,400.00 billion offered and $2,166.98 billion sold in the precious month, reflecting an increase of 16.66 percent and 21.15 percent respectively.
The relative increase in dollar supply at the WDAS window could be attributed to the marginal increase in demand as the Naira weakened mid- month on demand pressure prior to improvement in complementary dollar supply by energy companies estimated at $680.50 million and inflows from foreign portfolio investment in the equities and debt market following re-entry by offshore investors.
As part of its wide range September-end foreign exchange policy measures aimed at further ensuring sanity and stable foreign exchange rate through operational changes in the foreign exchange markets, the CBN has re-introduced the bi- weekly Retail Dutch Auction System (WDAS) in place of the suspended Wholesale Dutch Auction System (WDAS) effective from October 2013.
The WDAS Forwards Market was further inactive in the month under review, as attempt to renew activity in this segment of the foreign exchange market via auction in the previous month proved unsuccessful as no transaction took place. 11.08 percent, and 11.37 percent) for Call, 7 days and 30 days respectively, on the back of robust liquidity
levels facilitated by N323.34 billion FAAC fund injections.
On Monthly average, rates rose by (7.10 percent, 6.07 percent and 5.28 percent) for Call, 7 days and 30 days respectively in the month under review compared with the average rates of the previous month due to persistent illiquidity.
Inflow-Outflow dynamics for the Month of September
Inflows ‘bn Outflows ‘bn Net Position ‘bn Treasury Bills 779.23 501.
Also, the value of the naira weakened against the dollar across the four market segments. The naira weakened by 1k at the CBN wDAS window, 113 kobo at interbank, 88 kobo at BDC and 114 kobo at the parallel market relative to the average rate in the previous month. The Naira depreciated at the interbank market and raced close to N164.00/$ for the first time in twenty-one (21) month before the apex bank’s intervention through direct sales to interbank as a result of increase demand pressure.
The wholesale market for foreign exchange experienced increased market demand compared to the previous month. The apex bank offered $2,800.00bn and sold $2,625.22bn in relation to $2,400.00bn offered and $2,166.98 billion sold in the precious month, reflecting an increase of 16.66 percent and 21.15 percent respectively.
The relative increase in dollar supply at the WDAS window could be attributed to the marginal increase in demand as the Naira weakened mid- month on demand pressure prior to improvement in complementary dollar supply by energy companies estimated at $680.50mn and inflows from foreign portfolio investment in the equities and debt market following re-entry by offshore investors.
As part of its wide range September-end foreign exchange policy measures aimed at further ensuring sanity and stable foreign exchange rate through operational changes in the foreign exchange markets, the CBN has re-introduced the bi- weekly Retail Dutch Auction System (RDAS) in place of the suspended Wholesale Dutch Auction System (WDAS) effective from October 2013.
The WDAS Forwards Market was further inactive in the month under review, as attempt to renew activity in this segment of the foreign exchange market via auction in the previous month proved unsuccessful as no transaction took place.

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