Cash Call Rescues Money Market
Economy
By Ayodele Aminu
The inflow of N4.2 billion from cash call payments was the saving grace last week for the money market that had been experiencing liquidity squeeze in the last two weeks. Early last week, cost of funds (interest rates) had risen following the withdrawal of public sector funds by the Central Bank of Nigeria (CBN) and the decision of the big banks which account for over 70 per cent of funds in the inter-bank market to recall their matured placements and refuse to roll-over or grant new ones.
In addition to this was the flight to safety by customers through panic withdrawal of their funds from banks perceived as not having the financial muscle to meet the N25 billion new capital base announced last month by CBN Governor, Prof. Charles Soludo.
Respite however came for the money market when cash call payment of N4.2 billion naira hit the system to neutralize the hole creating by the big bank which have refused to play in the inter - bank market where cost of funds had earlier sky-rocketed.
In spite of this development, investment at the Government Securities Trading slumped by 3 per cent, from N63.25 billion a fortnight ago, to N61.34 billion last week.
The Government Securities Trading comprising the Open Market Operations (OMO) and the Primary Market are some of the windows available for investment through which the CBN controls the amount of liquidity in the system by selling treasury bills through which the Federal Government borrows indirectly from banks, thereby mopping up their excess funds.
A breakdown of the amount (N61.34) withdrawn from the economy last week shows that N3.8 billion, N500 million, N550 billion and N10.514 billion were withdrawn on Monday, Tuesday, Thursday and Friday respectively through the daily OMO, while the remaining N45.98 billion was mopped up through the PMA.
At Monday's OMO where bills with life span of 35 days and maturity date of September 13, 2004 were sold, all the N3.8 billion bills received were sold at the issue and bid rate of 14.2500 per cent apiece, while the true yield stood at 14.4465 per cent.
At Tuesday's OMO where bills with life span of 35 days and maturity date of September 14, 2004 were sold, all the N500 million worth of bills placed on offer were allotted at the issue and bid rates of 14.2500 per cent apiece. The true yield also stood at 14.4465 per cent.
At Thursday's OMO where bills with life span of 35 days and maturity date of September 16, 2004 were sold, all the N550 million worth of bills placed on offer were allotted at the issue and bid rates of 14.2500 per cent apiece. The true yield also stood at 14.4465 per cent.
At Friday's OMO where bills with life span of 35 days and maturity date of September 17, 2004 were sold, all the N10.514 billion worth of bills received were allotted at the issue and bid rates of 14.2500 per cent apiece. The true yield stood at 14.4465 per cent.
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