CBN Raises N1.34trn from OMO, Treasury Bills Auctions
With the aim to manage liquidity balance in the financial system, the Central Bank of Nigeria (CBN) mopped up about N1.34 trillion from the economy amidst growing credit to the private sector.
In September, system liquidity received intermittent boost from FAAC inflow totaling ₦903.4 billion, according to Afrinvest Limited, the investment banking firm said in a note that the huge inflow was moderated open market operations (OMO) and Treasury bills auctions.
Analysts explained that the Apex Bank mopped up N622.7 billion via Treasury bills sales to investors last month with additional outflow resulting from N712.50 billion OMO auction debit.
Still, system liquidity closed higher at ₦253.6 billion in September in contrast to negative close in August. Despite the elevated system liquidity, money market rates climbed, reflecting adjustment to interest rate environment.
Due to increase demand for interbank funds, money market rates increased. The open report rate rose by 9.90 percentage points to 28% while overnight lending rate climbed by 8.7 percentage points to 28.7% in the month.
Total money in the economy has remained downside to curtailing inflation rate. Though consumer price index dovetailed for two consecutive months, analysts’ maintained disinflation happened on the back of base effects on the numbers.
This notion encourage the CBN monetary policy committee to maintain hawkish appetite with additional 50 basis points increase in benchmark interest rate in Sept.
The CBN increased monetary policy rate to 27.25% and hiked cash reserves ratio to 50%, respectively, which kept a substantial portion of bank deposits with the central bank, limiting liquidity and constraining interbank lending, said Afrinvest Limited.
Latest report showed that credit to the private sector (CPS) increased by 31.2% year on year to N74.73 trillion in August versus N56.95 trillion the previous month balance.
“We attribute the sustained private sector credit growth to CBN’s enforcement of the 50.0% loan-to-deposit ratio and the effect of currency depreciation on naira-denominated assets”, Cordros Capital Limited said.
On a month-on-month basis, analysts noted that the credit to private sector declined slightly by 1.0% in August to N75.51 trillion as against +3.2% uptick reported in July, 2024.
Analysts attributed the development to slowdown in private sector borrowing due to CBN’s tighter monetary policy measures to curb the rising inflation and stabilise the economy.
Overall, the currency in circulation increased by 55.8% year on year to N4.14 trillion versus N2.66 trillion in August 2023. Report showed that Broad money supply grew by 61.9% to N107.19 trillion, following 75.3% increase across quasi-money and 43% uptick in narrow money supply.
“We believe the re-enforcement of the CBN’s limit on DMB’s loan-to-deposit macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term. Nonetheless, we believe that the apex bank’s intensified monetary policy tightening measures will tether the magnitude of growth”, analysts at Cordros Capital Limited said in a commentary note. #CBN Raises N1.34trn from OMO, Treasury Bills Auctions
