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Interbank Rates Rise as CBN Sells Treasury Bills, Dollars

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  • Interbank Rates Rise as CBN Sells Treasury Bills, Dollars

Nigeria’s interbank lending rate rose to around 20 per cent on Friday, from five per cent on Thursday, after the central bank sold treasury bills to mop-up excess liquidity and announced plans to sell dollars to businesses.

The interbank rate reflects the level of naira cash liquidity in the banking system.

The central bank said in a notice to commercial lenders on Friday it would sell dollars to manufacturers, airlines, fuel importers and agriculture businesses at a special auction to clear their backlog of foreign exchange obligations.

Traders said the auction and sales of treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market. That pushed up the cost of borrowing among lenders.

The central bank sold N86.25 billion worth of 365-day and 195-day treasury bills on Friday in a bid to reduce excess liquidity following the government’s distribution of debt refunds to some states on Monday.

According to Reuters, traders said some banks initially quoted as high as 50 per cent for overnight placement but this fell to around 15-20 per cent toward the market close.

“We expect the interbank rate to trend down further after results of the special forex auction are announced and more liquidity flows into the market,” one currency trader said.

Meanwhile, money market rates trended lower on all trading days of the week save for Friday on the back of higher system liquidity; thus, Open Buy Back (OBB) rates rose five per cent week-on-week to 14 per cent on Friday.

At the start of the week, OBB and overnight rate eased 2.8 percentage points apiece to close at 6.2 per cent and 6.9 per cent respectively (from 9% and 9.8% recorded the preceding Friday) owing to Paris Club loans repayment of N243 billion which hit the system late on Friday of the preceding week.

According to Afrinvest West Africa Limited, the CBN conducted Open Market Operations (OMO) auctions on the first two trading days to squeeze liquidity, selling N19.5 billion and N41.8 billion of OMO bills last Monday and Tuesday respectively, in addition to foreign exchange (FX) auctions last Monday, which had minimal impact on system liquidity.

Nonetheless, financial system liquidity further improved midweek on the back of a FAAC inflow of N462.36 billion; consequently, money market rates continued to moderate in subsequent sessions – OBB and overnight rates settled at 4.8 per cent and 5.3 per cent respectively on Wednesday and closed flat on Thursday as the impact of N97.4 billion OMO maturity was offset by debit for Wednesday’s treasury bills Primary Market Auction (PMA).

The CBN further mopped up N213.9 billion on Friday via an OMO auction, thus, OBB and overnight rates inched higher to 14 per cent and 14.9 per cent on Friday.

“The improved system liquidity at the start of the week triggered buying interest at the treasury bills market as rates trended lower across tenors on all trading days of the week,” Afrinvest West Africa Limited stated.

It revealed that average treasury bills rate closed 13 basis points lower at 18.1 per cent on Monday and the bullish sentiment was sustained till mid-week as rates trended 26 basis points lower despite treasury bills maturity of N97.9 billion and a rollover of N205 billion – implying a net-debit of N107.1 billion.

The CBN offered N36.8 billion of the 91-day, N39.2 billion of the N182-day and N129 billion of the 364-day instruments.

Expectedly, investors positioned at the longer end of the curve as all instruments were undersubscribed and under allotted save for the 364-day instrument.

The CBN allotted N32.4 billion of 91-day bills at stop rate of 13.4 per cent, N26.6 billion of 182-day at 17.4 per cent and N145.9 billion of 364-day at 18.5 per cent respectively. Average treasury bills rates across benchmark instrument settled at 17.6 per cent on Friday, down 62 basis points week-on-week.

“This week, there will be maturing treasury bills worth N65.032 billion viz: 364-day bills. We however anticipate limited impact of the maturities; hence, we expect some pressure on financial system liquidity and resultant increase in interbank rates,” analysts at Cowry Assets Management Limited stated.

On their part, Afrinvest anticipated that the CBN would continue its aggressive stance by way of OMO and foreign exchange auctions.

“Hence, we expect money market rates to be altered by liquidity dynamics,” they added.

Foreign Exchange

The currency market continued to witness consistent improvements in liquidity and rates convergence this week. The CBN also sustained its interventions at the interbank market via Wholesale and Retail SMIS which continued to boost liquidity and confidence in the economy. Last Monday, the central bank intervened in the foreign exchange market, selling $195 million in total – US$100 million to the wholesale segment, US$50 million to the small and medium enterprises (SMEs) segment and US$45 million allocated to the retail invisibles segment to cater for demand for business/personal travel allowances, school tuition, medical fee etc.

Against this backdrop, naira exchange rate at the official market appreciated three basis points to N305.80/$1 from the preceding week’s close of N305.90/$1.

Meanwhile, at the FMDQ NAFEX segment, a total of US$257 million was traded between Tuesday and Friday; yet, the currency depreciated 0.2 per cent week-on-week at the window to N365.33/$1 from N364.66/US$1 in the prior week.

Likewise, rate at the parallel market depreciated 0.8 per cent to N370/US$1.00 from the preceding Friday’s close of N367.00/US$1.00.

Also, at the FMDQ OTC Futures segment, the value of open contracts closed the week lower at US$2.2 million from the previous week’s close of US$2.8 billion owing to the naira/dollar JULY 2017 contract valued at US$657.6 million which matured during the week, Afrinvest disclosed.

In line with trend, the CBN replaced this maturing contract with the naira/dollar JULY 2018 instrument.

“However, in line with recent trend, we do not expect keen interest in the newly opened contracts. All contracts opened since May 2017 – following upward revision of prices – have received minimal interest.

“The NG/US JUN 2018 and NG/US JUL 2018 have received a total subscription of US$56.9 million and US$18.3 million respectively while the NG/US MAY 2017 has not attracted any subscription since the change in settlement exchange rate to NAFEX from NIFEX.

“We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the NAFEX window,” they added.

Bond Market Review

According to Afrinvest, the lacklustre trend which had pervaded the activities in the domestic bond market was sustained last week with marginal movements in yields recorded through the week. At the start of the week, average yield across the bond yield curve declined to 16.7% (from 16.8% the preceding Friday) as the price appreciation in the JUL 2017 instrument was offset by impact of sell offs recorded in mid to long tenored bonds. This was reversed on Tuesday as sell offs were recorded across board while average yield climbed to 16.8%. However, sustained buy interest in the JUL 2017 and AUG 2017 instruments dictated performance for the rest of the week as average yield fell four basis points and 12 basis points on Wednesday and Thursday but stayed flat on Friday to eventually close the week at 16.7%, down 15 basis points week-on-week.

In the coming week, they predicted that the performance of the domestic bond market would be largely determined by deliberations from the Monetary Policy Committee which commences today.

Meanwhile, the report showed that the upbeat performance of the Sub-Saharan Africa Eurobonds from the preceding week, persisted last week as yield on all trading instruments declined week-on-week save for the GABON 2027 (+0.2%), SOUTH AFRICA 2019 (+2bps) and SOUTH AFRICA 2041 (+2bps).

“We attribute the sustained interest in SSA Eurobonds to statements from the US Fed which suggests that rate hikes may be implemented at a slower pace during the year. NIGERIA 2023 instrument is the best performing with a YTD gain of 6.7%.

“Across the Nigerian Corporate Eurobonds, performance for the week was mixed albeit more positive than negative. Yield across all trading instruments declined week-on-week save for the DIAMOND 2019 (+9bps), GUARANTY 2018 (+1bp) and UBA 2022 instrument which closed flat.

“The DIAMOND 2019 (+22.2%) and FBN 2021 (+20.1%) instruments remained the best performing year-to-date and we believe this is broadly tied to the attractive pricing of the instruments,” Afrinvest added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Energy

Federal Government Announces Free CNG Conversion for Commercial Vehicles

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The Federal Government declared on Thursday that the conversion of petrol and diesel-powered commercial vehicles to run on Compressed Natural Gas (CNG) will be free of charge.

The announcement came after the government signed agreements with several companies specializing in the conversion of petrol and diesel vehicles to CNG.

Michael Oluwagbemi, the Programme Director/Chief Executive of the Presidential Compressed Natural Gas Initiative (P-CNGI), disclosed the details of the program to journalists in Abuja.

“Today we’ve just signed with five partners here in the FCT (Federal Capital Territory) participating in the Conversion Incentive Programme,” Oluwagbemi stated.

“The program is tackling the barrier to Nigerian commercial transport operators to convert from PMS (petrol) to gas. Most of them have said that the cost of conversion is expensive, and so what we are doing here today is basically to respond to that concern.”

Benefits for Commercial Transport Operators

The initiative primarily targets commercial transporters under various unions, including the Road Transport Employers Association of Nigeria (RTEAN), National Union of Road Transport Workers (NURTW), and the Nigerian Association of Road Transport Owners (NARTO).

According to Oluwagbemi, these unionized operators will receive conversion kits and installation services completely free of charge.

“This is going to be done through certified conversion workshops that we are beginning to identify. We’ve identified about 123 of them, and five are here with us today in Abuja. As we expand across the country, we will activate more of them,” he said.

Ride Share Operators Included

In addition to unionized commercial transporters, ride share operators such as those working with Uber, Bolt, Lag-Ride, and Move will also benefit from the program. These operators will receive a 50% discount on the conversion equipment and free installation.

Furthermore, the arrangement allows them to pay for the remaining costs in installments, eliminating the need for upfront payments.

“We hope to add more ride share operators soon. Lag-Ride has already signed up, and we are going to send the agreement next week,” Oluwagbemi added.

Impact on Transportation Costs

Through this program, the government aims to reduce transportation costs for Nigerians. Oluwagbemi highlighted that over 20,000 kits will be available in the next three months, distributed across 25 states with existing CNG capacity.

This initiative is part of a broader palliative program funded by the National Assembly, which has allocated additional resources for the acquisition of more kits later this year.

“The agreement we signed today ensures that the savings from the conversion will be passed on to ordinary Nigerians. We will begin to see some impact in terms of reduced transportation costs,” Oluwagbemi noted.

Monitoring and Enforcement

To ensure the success of the program, the government has implemented a robust monitoring mechanism.

The Nigerian gas vehicle monitoring system will oversee the conversion process and ensure compliance with agreed pricing reductions.

“We have a very strong monitoring mechanism around conversion and the enforcement of reduced pricing for Nigerians. The framework of the agreement includes significant pass-on of savings to ensure the purpose of the palliative is achieved,” Oluwagbemi emphasized.

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Crude Oil

Nigeria’s Oil Production Rises by 25,000 Barrels Daily, Hits 1.276 Million BPD in July

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Nigeria’s daily oil production increased in July by 25,000 barrels per day to 1.276 million barrels per day (mbpd).

This development was disclosed by the Organisation of the Petroleum Exporting Countries (OPEC) in its Monthly Oil Market Report for June, based on direct communication with the Nigerian government.

In April, production was recorded at 1.28mbpd, but it fell to 1.25mbpd in May.

Secondary sources cited by OPEC indicated a slight decrease from 1.37mbpd in May to 1.36mbpd in June.

This disparity shows Nigeria’s challenges in maintaining a steady increase in oil production.

Mele Kyari, Group Chief Executive Officer of the Nigeria National Petroleum Company Limited (NNPC), had previously stated that crude production was approaching 1.7mbpd in May.

Kyari emphasized the potential for higher production levels, recalling that during the COVID-19 pandemic in April 2020, Nigeria’s production reached 2.2mbpd without new drilling activities.

The drop in production since then has been attributed to various factors, including theft and vandalism of oil infrastructure.

Despite these challenges, Nigeria’s oil production saw a marginal increase in April, rising from 1.23mbpd in March to 1.28mbpd, according to OPEC data.

This increase followed a significant drop from 1.32mbpd in February to 1.23mbpd in March.

Stakeholders have expressed concern over the persistent decline in production and its impact on revenue.

In response, the NNPC declared a state of emergency on oil production, aiming to address the factors hindering output.

At the Nigeria Oil and Gas Conference and Exhibition Week in Abuja, Kyari reaffirmed the NNPC’s commitment to tackling production challenges.

“We have declared war on the challenges affecting our crude oil production. We know what to fight, we have the right tools, and we are working with our partners to improve the situation,” Kyari stated.

The recent increase in daily oil production is a positive development for Nigeria’s oil sector, but sustained efforts are required to achieve long-term stability and growth in production levels.

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Crude Oil

Oil Prices Climb as U.S. Inflation Eases, Brent Hits $86

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Crude oil - Investors King

Oil prices rose on Friday after traders noticed signs of easing inflationary pressures in the United States, the world’s largest oil consumer.

Brent crude oil, against which Nigerian oil is priced, had risen by 72 cents, or 0.8% to $86.12 a barrel.

Meanwhile, U.S. West Texas Intermediate (WTI) crude oil climbed by 85 cents, or 1%, to $83.47 a barrel. Both contracts had also gained in the prior two sessions.

Despite these gains, Brent crude oil was poised to fall by about 1% week-on-week after four consecutive weekly increases.

WTI crude oil, on the other hand, remained broadly stable on a weekly basis.

Investor confidence was boosted after data released on Thursday showed that U.S. consumer prices fell in June, fueling hopes that the Federal Reserve might cut interest rates soon.

Lower rates are expected to spur economic growth, thereby increasing fuel consumption.

However, the market is still awaiting more definitive signs of action. While Federal Reserve Chair Jerome Powell acknowledged the recent trend of improving price pressures, he told lawmakers that more data would be needed to strengthen the case for rate cuts.

“Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy,” said Yeap Jun Rong, a market strategist at IG.

In addition to inflation data, indications of strong summer fuel demand in the U.S. also supported prices. U.S. gasoline demand was at 9.4 million barrels per day (bpd) in the week ended July 5, the highest level since 2019 for the week that includes the Independence Day holiday, according to government data released on Wednesday.

Jet fuel demand on a four-week average basis was at its strongest since January 2020.

“The market will remain range-bound, paralyzed by opposing forces of expected demand recovery fueled by anticipation of a strong summer for fuel consumption … but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery,” said Emril Jamil, a senior oil analyst at LSEG.

The strong fuel demand encouraged U.S. refiners to ramp up activity and draw from crude oil stockpiles. U.S. Gulf Coast refiners’ net input of crude rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed.

However, weaker demand signs from China, the world’s largest oil importer, could counter the positive outlook from the U.S. and weigh on prices.

“The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year,” said Tamas Varga of oil broker PVM.

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