CBN to intensify liquidity mop up, forex intervention as Naira depreciation

The Central Bank of Nigeria  is expected to increase its intervention in the foreign exchange market as Naira depreciation, while also intensifying liquidity mop-up via Open Market Operation (OMO) TBs, offered at higher interest rate in bid to make them more attractive to investors.

The increased demand for dollars by foreign portfolio investors exiting the nation’s financial markets, persisted last week, prompting the CBN to intervene in the Investors & Exporters (I&E) window for the second week, while also sustaining its weekly $210 million intervention in the interbank foreign exchange market.

The naira suffered its biggest weekly depreciation of N2 as the parallel market exchange rate rose to N366 per dollar last Friday from N364 per dollar the previous week. “Foreign investors are not reinvesting proceeds of investment in matured treasury bills. This is due to the decline in interest rate on the treasury bills (TBs).

Interest rate on Nigerian treasury bills has fallen by 500 basis points between January and now, and this is a disincentive to the foreign investors to continue to invest in these instruments” .

N300bn FGN Bond matures this week The expected increased liquidity mop-up this week is imperative in view of inflow of N492 billion from maturing FGN Bonds and TBs. The inflow which comprised N300 billion worth of maturing FGN May 2108 (10.7percent) bond and N192 billion worth of maturing TBs, is expected to boost market liquidity, and offset impact of primary market TB auction of N49.6 billion.

This week, CBN will sell T-bills amounting to N49.60 billion via the Primary market; viz: 91-day bills worth N4.96 billion, 182-day bills worth N24.80 billion and 364-day bills worth N19.84 billion which will partly offset the maturing treasury bills worth 192.01 billion.

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