Analysts Predict CRR Debits for Banks after July Bond Auction

Analysts Predict CRR Debits for Banks after July Bond Auction

Analysts have predicted that the Central Bank of Nigeria could likely carry out what they call routine cash reserves ratio debits on banks after the July Bond auction settles this Friday.

Chapel Hill Denham’s analysts made the submission in a note.

For failing to meet its 65% loans to deposits ratio, the apex bank has been on CRR debits spree in the recent time.

Though, analysts said due to the lender of last resort non-refundable policy, effective CRR in the banking sector could be up to 50%.

Meanwhile, interbank funding rates fell to single digits on Tuesday, analysts said thanks to July FAAC inflow which lifted financial system liquidity.Analysts Predict CRR Debits for Banks after July Bond Auction

Market opened at N480.6 billion from N86.9 billion in the previous day.

Against this backdrop, the Open Buy Back (OBB) and Overnight (OVN) rates declined by 707 basis points (bps) and 787 bps to 2.10% and 2.80% respectively.

Analysts at Chapel Hill Denham stated that two more bond coupon payments are expected this week, which should help keep the financial system liquid.

“However, the CBN may likely carry out a routine CRR debit after the July bond auction settles on Friday”, analysts said.

Tough Tasks for MPC as Inflation Rate Outpaces MPR

In the fixed income market, sentiments were broadly bullish yesterday supported by a liquid financial system.

Discount rates on OMO bills compressed by 59bps to 4.78%, with interest seen across short (-147bps to 2.08%), medium (-10bps to 5.59%) and long (59bps to 4.78%) day to maturity.

Similarly, in the Nigerian Treasury Bill segment, discount rates moderated by 5 bps across the benchmark curve.

The moderation was driven by 19 basis point decline in interest in short day to maturity to 1.39%.

The bullish sentiment extended to the bond market with 8 bps drop across benchmark tenors to 7.21%.

Chapel Hill Denham said it continues to see apathy for duration by investors, short and intermediate bond yields compressed by 1bp and 27bps to 3.86% and 6.93% respectively.

Meanwhile, the first bond auction for Q3-2020 is scheduled to hold today, the Debt Management Office set to offer N130 billion across four tenors.

The tenors include N25bn of JAN 2026 (re-opening), N35bn of MAR 2035 (re-opening), N35bn of JUL 2045 (new issue) and N35bn of MAR 2050 (re-opening).

Analysts said 15-year and 30-year tenors, last issued in June, cleared at 8.0% and 12.15% respectively.

“Given that secondary market yields have significantly compressed since the last auction; we expect the auction to clear lower by at least 150 bps”, analysts stated.

Analysts Predict CRR Debits for Banks after July Bond Auction

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