Cost of funds in the interbank money market rose by over 1,900 basis points (bpts) last week in spite of a 127 per cent increase in the volume of idle cash (liquidity) in the market.
Data from FMDQ showed that the interest rate on Overnight lending rose by 1,950 bpts to 17.75 per cent last Friday from 15.75 per cent the previous week. Similarly interest rate on Open Repo lending rose by 2000 bpts to 17.5 per cent last week from 15.5 per cent the previous week.
Investigations revealed the above trend was occasioned by the scarcity of funds which prevailed in the market prior to Friday when the market experienced some inflow which lifted liquidity levels to N241 billion from N104.23 billion on Thursday.
The upward trend in cost of funds might persist this week in response to the monthly FGN Bond auction to be conducted by the Debt Management Office, DMO, this week.
According to DMO’s offer circular, N100 billion worth of FGN bonds is to be auctioned this week comprising N50 billion worth of 10-years bonds and N50 billion worth of 20-years of bonds.
The FGN bond auction conducted by the DMO in November recorded 191 per cent oversubscription, as investors demand (total public subscription) stood at N436.86 billion while the DMO offered and sold N150 billion and N225.25 billion worth of bonds respectively.
The FGN bond auction to be conducted by the DMO this week is expected to attract similar oversubscription and hence leading to significant liquidity outflow from the interbank money market, and further upward pressure on cost of funds.
