CBN Maintains Monetary PA Dovish Stance Keeping MPR Stable At The First Meeting Of The Year

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CBN: Banks' Total Assets Increased By N8.25 Trillion In 2021
CBN: Banks' Total Assets Increased By N8.25 Trillion In 2021

FGN Bonds

We also saw little action on the 2045 bonds, with trades executed around 11.65% ahead of supply from the bond auction. Consequently, yields compressed by c.1bps D/D on the average across the benchmark curve.

The MPC came out of its two-day meeting, maintaining its benchmark interest (MPR) at 11.50% as well as other monetary policy tools for the third straight meeting. Interestingly at this meeting, a third of the members opted this time for an increase in the MPR, a shift from the unanimous stance at the previous meeting towards a more hawkish monetary policy stance.

We expect another weak trading session tomorrow as investors remain focused on the coming bond auction.

Treasury Bills

Trading in the secondary market for Treasury Bills stalled again for another consecutive trading session, as local banks remain wary of taking on risk at single-digit levels preferring to wait for better rates at the primary auction (OMO) expected later in the week.

Offers across various short-term instruments (NTBs, OMO, and Special Bills) remained unheeded as tight system liquidity and double-digit money market rates continue to negatively impact discount rates.

OMO maturities of N43.00bn proved insufficient to kick start demand in the bills space, we expect the market to remain sparsely traded as local banks await the liquidity windfall from expected FAAC inflows.

Money Markets

Inflow from OMO maturities caused money market rates to recoil by an average of 288bps as funding pressures reduced and local banks increased funding from the CBN’s lending facility windows. OBB and O/N rates closed at 11.50% and 12.00% respectively.

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For tomorrow, we expect the interbank rates to venture into a single-digit corridor as the funding pressures remain low amongst the market players and FAAC payments are expected to flow later in the week.

FX Market

At the IEFX space, we saw an uptick in supply of the greenback, as traded volumes increased by 28.00% D/D (c.$33.11mio traded). The Naira appreciated by N0.33k in that space as most banks remained bid between N393.00 and N412.00 to the dollar.

The Naira lost value at the parallel market, with the transfer rates depreciating by 0.71% D/D (c.N3.50k loss) to close at N497.50/$ as demand remains largely unmet. The cash rate also depreciated by 0.10% D/D (c.N0.50k loss) to close at N483.00/$.

Eurobonds

The market continued to react negatively to increasing expectations of supply as the Nigerian government contemplates tapping into the Eurobond market to fund part of its budget, despite earlier indications of the opposite. The NIGERIA Sovereign tickers weakened for a second consecutive session, as yields expanded further by c.2bps D/D on the average across the sovereign curve.

The NIGERIA Corps tickers coughed up some of the previous day’s gains as investors looked to cycle out of current holdings to prepare for the upcoming Seplat 5-year issue.