Money Market Dealers Wait over CRR hike

Await maturity of N170bn short term assets.

At the financial market yesterday, dealers resorted to a 'wait and see' approach, following the Central Bank of Nigeria's (CBN) decision which targets easy money at the disposal of Nigerian banks.
Amid huge expectations that this decision would spike rates, BusinessDay checks at the money market showed that while there were only about10 basis points reduction across various tenors in the Nigerian Interbank Offer Rates (NIBOR), rate for 7 days money remained unchanged.
The wait and see game by financial market dealers was linked to their expectation of N170billion worth of short term assets which mature into the system today. Though at the Treasury Bills (T-Bills), there was significant sell-off; same as in the bond market –indicating sales pressure on fixed income
instruments.

The monetary policy committee (MPC) kept the policy rate unchanged at 12 percent with ± 2 percent asymmetric corridor for the standing deposit and lending facility rates (the 12th time in a row). Beyond the business as usual, the MPC increased the credit reserve requirement (CRR) on public funds to 50 percent (as against the general 12 percent on all deposit funds), an attempt to check banks' arbitrage on fiscal funds.
Analysts expect the impact of the MPC decision on CRR to trickle into the market from Friday. Abiola Rasaq, lead researcher at UBA Capital plc said, "The market will be bearish on the banks tomorrow (that is
today), especially tier-1 lenders and the likes of Skye Bank which are more vulnerable to the increased funding pressure."

Another analyst said: "The Treasury Bills market will be calm as traders stay on the sideline to get clarity from the primary market auction. Overall, we expect mild weakness in Treasury Bills yields as need for Open Market Operation (OMO) auction reduces. More so, the funding pressure will also leave banks with less liquidity to speculate on the foreign currency, thus the naira should be firm in the days ahead. However, the policy development is negative for banks' credit growth, which remained subdued over the last three years."

Figures from the Financial Market Dealers showed that the Nigerian Inter-Bank Offer Rate (NIBOR) –rate of interest charged on short-term loans made between Nigerian banks –Call money rate dropped from 10.3250 percent to 10.2917 percent.
Banks borrow and lend money at the inter-bank market, in order to manage liquidity and meet the requirements placed on them.

While NIBOR for 7 days money was unchanged at 10.5833 percent; that of 30 days money dropped from the preceding day's level of 10.9583 percent, to 10.8583 percent. For the 60 days money, NIBOR rate dropped from 11.2500 percent to 11.1083 percent. Also, rates for 90 days money dropped from 11.5000 percent to 11.3583 percent. In addition, 180 days money witnessed rate decline, from 11.7500 percent to 11.6250 percent; while 365 days money dropped from 12.0417 percent to 11.8750 percent.

"We look forward to soft selling of treasury bills and bonds, as some banks may need to partially short positions in treasury bills to fund the increased cash reserve requirement on public sector funds.
Thus, demand will be soft at the PMA, with possibility of a relatively higher rate than our earlier guidance of 11.50percent, 12.75percent and 13.25percent on the 91-day, 182-day and 364-day bills. In the equities market, banking stocks will be pressured as investors react to the implication of lower loan growth and funding pressure," UBA Capital analysts noted. At the forex market, the naira firmed up significantly
against the US dollar, gaining N1.77 kobo at the interbank market, to
close at N160.02/$ compared to N161.80/$, the preceding day, data from the Financial Markets Dealers Association (FMDA) have revealed.

Edgar Ebinum, analyst at Cowry Asset Management limited told BusinessDay that the "naira appreciated largely on the back of the new monetary policy that requires banks to reserve 50 percent public funds in cash, hence reducing their foreign exchange demand."

The CBN offered and sold a total of $300 million to 19 deposit money banks at the rate of N155.76/$ at its bi-weekly Wholesale Dutch Auction (WDAS).