Public Funds Withdrawal Jolts Govt Securities
Story by Ayodele Aminu
Public sector funds amounting to about N70 billion withdrawn from banks within the last two weeks has taken its toll on the Government Securities Trading.
A the close of business weekend, investment at the Securities Trading slipped by some 25.2 per cent, from N84.634 billion to N63.25 billion.
Confirming the withdrawal of the funds, a top official of the Central Bank of Nigeria (CBN) who spoke with THISDAY over the weekend however maintained that the funds were not withdrawn directly by the apex bank.
"It is true that the funds were withdrawn but it was not w
ithdrawn from banks by the CBN. What we did was to direct some key parastatals to withdraw their money from banks," he said.
The Monetary Policy Committee (MPC) of the CBN had in its report for the month of May 2004 stated that the CBN had commenced "partial withdrawal" of public sector funds from banks following the escalation in the rate of inflation, which stood at 22.5 per cent as at March 2004.
THISDAY however gathered that rather than compelling parastatals to indiscriminately withdraw their funds from banks, the CBN was said to have prevailed to allow the funds mature before withdrawal. This was said to have allowed the banks enough time to cushion the effect of such withdrawals.
The Committee made up of the CBN Governor, his deputies; Directors of Research; Foreign Operations; Banking Operations; Banking Supervision; Trade and Exchange; Other Financial Institutions; Governors Office; Special Adviser to the Governor; a member of the CBN board, including the Permanent Secretary of the Ministry of Finance usually meets once or twice on monthly bases to review developments in the macroeconomy and financial markets.
Withdrawal of public funds is a strategy for mopping up excess liquidity in the financial system. The CBN in its Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal 2004/2005 had stated that public sector funds could be moved from deposit money banks to the CBN as dictated by the monetary conditions.
The Government Securities Trading comprising the Open Market Operations (OMO) and the Primary Market Auction (PMA) are some of the windows available for investment through which the CBN controls the amount of liquidity in the system by selling treasury bills from which the Federal Government borrows indirectly from banks, thereby mopping up their excess funds.
At the securities market last week bills worth N63.25 billion were sold to discount houses, banks and the investing public. This indicates a decrease of N21.38 billion over the N8.63 billion of the previous week.
A breakdown of the amount withdrawn from the economy last week shows that no bill was bought on Monday, while N1.13 billion, N4.33 billion, N9.5 billion and N4.7 billion were withdrawn on Tuesday, Wednesday, Thursday and Friday respectively through the daily OMO, while the remaining N43.581 billion was mopped up through the PMA.
At Tuesday's OMO where bills with life span of 35 days and maturity date of September 7, 2004 were sold, all the N1.134 billion worth of bills received were sold at the issue and bid rates of 14.2500 per cent apiece, while the true yield also remained unchanged at 14.4465 per cent.
No bills matured for repayment, putting the net sale/purchase position at N1, 134 billion.
At Wednesday's OMO where bills with life span of 35 days and maturity date of September 8, 2004, were sold, all the N4.333 billion worth of bills received were also allotted at the issue and bid rates of 14.2500 per cent apiece. The true yield stood was also 14.4465 per cent, while bills amounting to N15.985 billion matured for repayment, putting the net sales/purchase at N11.652 billion.
At Thursday's OMO where bills with life span of 35 days and maturity date of August 9, 2004, were sold, all the N9.504 billion worth of bills received were also allotted at the issue and bid rates of 14.2500 per cent apiece. . The true yield also stood at 14.4465 per cent. No bills matured for repayment, putting the net sales/purchase at N9.504 billion.
At Friday's OMO where bills with life span of 35 days and maturity date of September 10, 2004, were sold, all the N4.7 billion worth of bills received were also allotted at the issue and bid rates of between 14.2000 - 14.2500 per cent apiece. The true yield also stood at 14.4465 per cent. Bills maturing for repayment stood at N8.87 billion, putting the net sales/purchase at N4.170 billion
At the Primary Market Auction - a 91 days tenured investment with November 4, 2004 as its maturity date, bills worth N43.581 billion were purchased out of the N65 billion worth of bills offered, at the issue rates of between 13.5000 - 14.5000 per cent per annum. Bid rates also ranged between 13.5000 - 14.5000 per cent per annum, while the true yield stood at 15.0431 per cent per annum.
Bills amounting to N34.585 billion were repaid, putting the net sales (purchase) position at N153 million.
Minimum Rediscount Rate (MRR) that is the nominal anchor of all interest rates in the economy however, remained unchanged at 15 per cent per annum.
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