Banks Camp at Standing Lending Facility as Liquidity Pressure Persist
Nigerian deposit money banks (DMBs) have developed new love with sustained visits to the standing lending financing (SLF) window to shore up liquidity position as pressure mounts on financial system liquidity, which further impacts interbank rates.
However, analysts believe that liquidity squeeze in the financial system that saw rates at high double digits will ease this week due to expected inflow from matured open market operations bills.
However, some banks would probably stay glued to the lending facility despite the projected ease due to their specific liquidity requirements, analysts told MarketForces Africa.
Chapel Hill Denham said in a report on Monday that interbank funding pressure remained elevated through last week as banks continued to access the Central Bank SLF window.
Consequently, funding rates closed the week in double digits’ territory due to persisted low liquidity in the financial system – this has been the pattern in the second quarter of 2021.
At the monthly Debt Management Office (DMO) bond auction which was held last week, N150 billion worth of bonds, split across three maturities: March-2027 (N50 billion), March-2035 (N50 billion) and July-2045 (N50 billion), were offered.
Chapel Hill Denham said investors showed their preference for long-dated maturities and subscription was decent at 1.9x, up from 1.8x previously.
For the auction, the DMO allotted N175 billion while marginal rates cleared higher by an average of 62 basis point to 13.8%: MAR-27 (+85bps to 13.10%, MAR-35 (+66bps to 14.00%) and JUL-45 (+35bps to 14.20%).
Recalled the National Bureau of Statistics (NBS) published the Consumer Price Index (CPI) report for April 2021, which showed a marginal decline in headline inflation rate, a trend that was last witnessed in September 2019.
Notably, headline inflation rate eased by 5bps to 18.12% year on year, printing below most analysts’ forecast, including Chapel Hill Denham’s estimate of 18.7% and Bloomberg consensus expectation of 18.8%.
The positive inflation surprise in April was mainly due to moderation in food inflation from record level (-23bps to 22.72%), while core inflation, which excludes the price of volatile agricultural produce, expanded by 7bps to 12.74%, analysts commented in separate reports.
“The first moderation in headline inflation rate in months will likely elicit questions on whether the strong run-up in inflation rate has peaked.
“Our views on this are nuanced. On one hand, we reiterate our view that high base effect will lead to strong disinflationary momentum in H2-2021. On the other hand, we note that upside risks remain over the near term”, Chapel Hill Denham said.
Analysts expected interbank liquidity should improve this week, based on open market operations (OMO) maturities on Tuesday worth N110 billion, bond coupon payments and strong possibility of FAAC inflows.
A rollover Nigerian Treasury Bill auction is scheduled to hold on Wednesday, with the CBN offering N63.2 billion worth of T-bills: N24.2 billion, N19.2 billion and N19.8 billion on the 91-day, 181-day and 364-day respectively.
The previous auction cleared at 2.5%, 3.5% and 9.75% respectively as analysts believe odds are in favour of higher stop rates.
The Monetary Policy Committee (MPC), Chapel Hill Denham said its baseline expectation is for a hawkish outcome, possibly +50bps hike in policy rate (MPR) to 12.0%, due to exchange rate concerns and elevated inflationary pressures.
The trend in the exchange rate continue to trade within a narrow band across all segments of the FX market, particularly, at the investors and exporters Window, the Naira depreciated slightly by 0.08% against the USD to close at N412 weekend.
Activity level weakened in the I&E Window, as average daily turnover moderated by 8% week on week to a weekly average of US$102.2 million, from US$111.4 million in the prior week. In the parallel market, the Naira depreciated by 0.2% wow to N485.00/US$.
In a new report published by the National Bureau of Statistics, the economy grew by 0.51% year on year, making this the second consecutive growth since the COVID-19 induced recession.
In the fourth quarter of 2020, GDP had jumped 0.11%.
The growth was anchored by the non-oil sector, which expanded by 0.8% as against 1.7% reported in Q4-2020 Notably, the manufacturing sector spearheaded the growth in the non-oil leg.
Elsewhere, the oil sector declined at a slower pace, by 2.2% in Q1-2021 from 19.8% in Q4-2020, reflecting Nigeria’s compliance with OPEC+ production cut, which drove oil production lower by 16.9% year on year to a 4-year low of 1.72mb/d.
“We expect the recovery to linger, owing to full economic reopening on compliance fatigue and vaccine rollout, higher oil prices as well as the impact of a favourable base effect from the prior year”, Chapel Hill Denham said.
Banks Camp at Standing Lending Facility as Liquidity Pressure Persist
