Nume Ekeghe
Nigeria’s financial system is set for another wave of liquidity in June, with an estimated N10.90 trillion expected to flow into the market, driven largely by Open Market Operations (OMO) maturities, the Financial Markets Dealers Association (FMDA) has said.
FMDA who stated this in its Monthly Market Report projected that June inflows would be about 3.51 per cent higher than the N10.53 trillion recorded in May, with OMO maturities accounting for the largest share of expected liquidity injections.
According to FMDA, OMO maturities are expected to reach N7.77 trillion in June, representing about 71 per cent of total projected inflows. Treasury bill maturities are estimated at N995.81 billion, while Federal Government bond coupon payments are projected at N278.99 billion. The report also estimates FAAC distributions to the federal, state and local governments at about N1.8 trillion.
“Looking ahead, an estimated N10.90 trillion in inflows is projected for June, about 3.51per cent higher than May levels. OMO maturities are expected to account for about 71per cent of total inflows, though the ultimate liquidity impact may be moderated by subsequent CBN sterilisation activities,” the report stated.
The positive liquidity outlook comes despite aggressive monetary management by the Central Bank of Nigeria (CBN) during May. FMDA noted that average system liquidity rose by 7.76 per cent to N5.22 trillion even as the apex bank withdrew an estimated N12.06 trillion through liquidity management operations.
The report said, “Average system liquidity increased by 7.76 per cent in May to N5.22 trillion, despite the CBN withdrawing an estimated N12.06 trillion through liquidity management operations during the period.”
In the foreign exchange market, the naira weakened slightly during the month. FMDA reported that the currency depreciated by 0.64 per cent in the Nigerian Foreign Exchange Market (NFEM), despite a significant increase in market activity.
“The naira depreciated marginally in the official market in May, despite total NFEM turnover rising to over $8 billion,” the report added.
FMDA also pointed to improving external reserve dynamics, noting that reserves gained more than $1 billion within about three weeks as proceeds from earlier crude oil exports began to flow into government accounts.
“External reserves increased by more than $1 billion within about three weeks in May, as receipts from earlier crude oil exports and elevated oil prices gradually flowed into the reserve position,” FMDA stated.
In the fixed-income market, yields were largely stable. FMDA said FGN bond yields were mixed during May, with lower yields at the short end offset by increases across medium and long-term maturities. Treasury bill yields also remained broadly stable, although three-month and six-month instruments recorded modest increases.
“FGN bond yields were mixed in May, with declines at the short end offset by increases across the mid- and long-tenors. Nigeria’s 10-year bond yield rose marginally to 14.96per cent, broadly in line with developments across global fixed income markets,” the report noted.
The report observed that global bond yields generally trended higher during the month due to persistent inflation concerns and expectations that major central banks would maintain cautious policy positions.
FMDA noted that the gains came despite weaker trading activity, with trade volume and trade value declining by 60.96 per cent and 66.55 per cent respectively.
Looking ahead, it advised market participants to position portfolios to benefit from elevated liquidity conditions while maintaining prudent foreign exchange risk management.
“Our Take, the report stated, is to, “Position portfolios to benefit from elevated liquidity and sizeable June inflows,” while also monitoring CBN liquidity management operations, which may offset part of the projected inflows.”
