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Nigeria: 451 Billion Naira Statutory Allocation Deflates Cost of Funds By 37 Percent
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Vanguard (Lagos)
24 July 2008
Posted to the web 24 July 2008
Babajide Komolafe
Cost of funds in the interbank money market dropped sharply by 37.75 per cent following the influx of about N451 billion statutory allocations to the three tiers of government for July.
The influx lifted the market from the grip of another period of scarcity of funds prompted two weeks ago following the withdrawal of N68.2 billion by the Nigeria National Petroleum Corporation ( NNPC) and a cash reserve net debit of N15.7 billion, as well as a was a net outflow of N40.4 billion through government securities.
Consequently, interest rate on interbank placements fell rapidly in reflection of the new liquidity mood of the market. Interest rate on open buy back (OBB) or collateralized lending which stood at ten per cent for most part of the week dipped by one third to 6.5 per cent. Similarly interest rate on Overnight lending fell by 40 points to 12.5 from 6.25 per.
The influx not withstanding, total amount of government securities (treasury bills) sold by the Central Bank of Nigeria (CBN) fell slightly to N228.9 billion from N241.9 billion the previous week.
At the secondary market where existing bills are sold the apex bank issued dropped to ten from 22 the previous week. Consequently the amount sold dropped by more than half to N50 billion from N110 billion. The issue rate ranged from 9.2 to 9.55 per cent. On the other hand the apex bank repaid N25.012 billion worth of maturing secondary market bills.
At the primary market where new bills are issued the N5 billion worth of 91 days bill on offer was oversubscribed with public subscription at N9.597 billion.
The CBN sold N5 billion at issue rate of 9.299 per cent, and repaid N5 billion worth of matured 91 days bills. Also the N35 billion worth of 182 days bill on offer was almost 100 per cent oversubscribed with public subscription at N65 billion. The CBN however sold N36.652 at issue rate of 9.5450 per cent, while it repaid N10 billion worth of matured 182 days bills.
Furthermore to dampen the effect of the statutory allocation on inflation, the CBN issued 137.2 billion worth of reverse repo bills representing an increase of 40 per cent against the N97.75 billion issued the previous week.
Meanwhile, the N451 billion statutory allocation released to the three tiers of government for July brings to N3.879 trillion the total amount of money shared by the three tiers of government so far this year.
It would be recalled that Vanguard Newspaper exclusively reported on Monday that the three tiers of government shared a about N3.428 trillion in the first half of the year while the Central Bank of Nigeria (CBN) sold a total of $1.97 billion during the period.
Analysis of monthly statutory allocations and excess crude oil revenue as reported by the monthly economic
report of the Money Market Association of Nigeria (MMAN), the umbrella body of banks' treasurers and the first quarter economic report of the CBN reveal that three tiers of government shared N1.196 trillion in the first quarter of the year. The amount shared more than doubled in the second quarter to N2.828 trillion. The sharp increase was occasioned by excess crude oil revenue of N192 billion and N600 billion shared in May and June respectively.
In January the three tiers got about N490.19 billion which dropped to N266.9 billion in February. The figure almost doubled in March as N439.9 billion was shared during the month while N444.25 was shared in April. The amount shared soared to N746.75 billion in May courtesy excess crude revenue, which also jerked to figures for June to N1.04 trillion.
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Meanwhile, the CBN sold about $1.97 billion through the Wholesale Dutch Auction System (WDAS) in the first half of the year. In the first quarter it sold $515.1 million while it sold N1.462 billion in the second quarter.
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