CBN Sells N554bn Treasury Bills, 24% over Target
The Central Bank of Nigeria (CBN) sold treasury bills worth about N554 billion in September 2022, according to its primary market auction results. The amount of Treasury instruments sold exceeds the apex bank target by 24.1%, Afrinvest said in a market note.
At the primary market auction last week, the apex bank raised the spot rate on the 364-day Treasury bill to 12% following 400 basis points interest rate hike that started in May 2022. With a higher inflation rate, market participants have started pricing interest rate hikes across financial instruments.
Monetary tightening started gaining momentum as the inflation rate hits 20.52% in August 2022. However, analysts’ consensus remains that the consumer price index would worsen in the fourth quarter.
On that expectation, the monetary authority has signalled a stronger hawkish tone as the CBN switched to inflation fight measures to achieve a stable price level amidst global disruption in the value chain.
Food inflation in Nigeria has worsened, driven by insecurity and poor agricultural output while the Russia-Ukraine war continues to pose threat to recovery. CBN has maintained a balance in managing liquidity position, encouraging savings following an interest rate hike.
Analysts told MarketForces Africa that surplus fund will find their way into the financial system on the back of a higher interest rate. There are notable downsides which include higher costs of production, and borrowing rate which is expected to temper consumption and gross domestic growth.
In a market note, investment banking firm, Afrinvest Limited wrote that system liquidity grew 14.7% to ₦853.3 billion in September as inflows from OMO bill maturities worth ₦35 billion and primary market auction repayments value at ₦724.3 billion outpaced outflows.
Analysts said regardless, the overnight policy rate and overnight lending rates closed the month at 15.5% and 16.0%, up 7.5 percentage points and 7.3 percentage points month on month.
In September, the apex bank conducted three rounds of Nigerian Treasury bills primary market auction, all of which recorded buy interests, with a bid-to-cover ratio of 1.7x. Overall, the CBN sold ₦553.7 billion worth of T-bills, 24.1% higher than the prior month.
Stop rates advanced at the T-bills auctions with rates on the 91, 182, and 364-day instruments rising by 250 basis points, 2.5 basis points, and 350 basis points to 6.5%, 7.5%, and 12.0% respectively. READ: Yield Rises to 10.44% as DMO Sells Bond
In the secondary market, traders said the performance was bullish as the average T-bills yield fell 64 basis points to 7.6% in September 2022. This performance was supported by buying interest in the 91-day instrument which recorded a 490bp-decline in yield month on month to 6.7%, according to Afrinvest.
“We observed sell-off across 182 and 364-day instruments as yield rose 75 basis points and 224 basis points month on month to 7.3% and 9.0% respectively. Afrinvest expects inflows worth ₦432.3 billion and ₦100.0 billion from T-bills and OMO bills maturities respectively.
Notwithstanding, analysts projected that funding rates will remain elevated due to the liquidity pressure to be caused by CBN’s mop-ups and higher cash reserve ratio. In the secondary market, analysts said they expect the depressed liquidity level to weigh on performance. # CBN Sells N554bn Treasury Bills, 24% over Target
