Excess liquidity: CBN Raised N7.7tn via NTBs, OMO in Q1 2024
Kayode Tokede
Following its drive to tackle excess liquidity in the banking sector, the Central Bank of Nigeria (CBN), raised a whooping N7.7 trillion from Nigerian Treasury Bill (NTBs) and Open Market Operation (OMO) in first quarter of 2024.
This, according to THISDAY findings, represent 383 per cent increase over N1.59 billion raised by the CBN in Q1 2023.
Analysis of market numbers revealed active NTBs auctions all through the first three months of 2024, while OMO auctions were only conducted January and March.
A breakdown revealed that the CBN in Q1 2024 sold a total N5.6 trillion NTB as against N1.59 trillion sold in Q1 2023, while OMO total sales in Q1 2024 stood at N2.06 trillion and these no OMO sales in Q1 2023.
Notably, foreign and local investors responded positively to higher rates, as seen in the robust subscriptions, suggesting confidence in the CBN’s ability to manage the country’s fiscal challenges.
Specifically, foreign and local investors total subscription on NTBs stood at N21.1 trillion as it offered N2.21trillion in Q1 2024.
A closer look at the Q1 2024 NTBs revealed a gradual increase in the stop rates offered by the CBN.
The stop rates on NTB have surged significantly from 2.44 per cent on a 91-day tenor bill, 4.22 per cent on a 182-day tenor bill, and 8.3995 on a 364-day tenor bill from the first auction in January to 16.24 per cent, 17 per cent, and 21.124 per cent respectively from the last auction in March 2024.
The heightened interest in the NTBs signifies a keen investor appetite for higher interest rates, providing a solid anchor for the fiscal stability of Nigeria.
Notably, the stop rate for the 364-day bill hit a high of 21.124 per cent on the same date, reflecting tightening monetary conditions.
This longer tenor bill attracted a mammoth subscription of approximately N2.48 trillion, with the CBN capitalising on this demand to offer a whopping N142.16 billion at this rate, costing the apex bank N239.61 million in interest payment.
Experts expressed that the NTBs auction represents a move by the CBN to manage the country’s address liquidity in the financial system, stressing that inflation rate responsible for push in NTBs interest rate witnessed so far in Q1 2024.
Commenting on the development, the Vice President, Highcap Securities Limited, Mr. David Adnori, stated that NTBs are considered to be one of the safest forms of investment since they are backed by the government.
He said, “As the rate on NTB increases, it becomes more attractive to investors who are seeking a risk-free investment as they may choose to invest in Treasury Bills rather than other riskier investment options. The CBN had lure investors with attractive interest rate otherwise most of these auctions will under subscribed. The performance of the one-year bills showed that investors had confidence in the current government and the reforms it had embarked on.
“Firstly, the investors are seeking higher rates for funding due to CBN signalling further tightening due to accelerating inflation and other factors. Secondly, interest seems skewed towards the longer end of the curve, which is an indication of confidence in the government and its reforms. Also, the massive over–subscription shows the significant system liquidity.”
The CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka said, “the essence is to encourage foreign inflows that could help improve dollar liquidity in the foreign exchange market and cause a moderation in naira exchange rate until the market attains equilibrium level.
“I have no doubt that it was the most appropriate decision on the part of CBN and government at this time. There’s need to improve dollar liquidity that will eventually force domestic interest rate to moderate subsequently.”
The CBN, under Yemi Cardoso, has increased the monetary policy rate (MPR) by 600 basis points so far, from 18.75per cent to 24.75 per cent.
The apex bank’s decision to tighten monetary policy by increasing interest rates and auctioning larger volumes of treasury bills is a strategic move to address several macroeconomic concerns.
Higher interest rates are typically employed to control inflation; they make borrowing more expensive, thereby tempering spending and investment, which, in theory, should reduce the upward pressure on prices.
Additionally, these higher rates tend to attract foreign investors seeking better yields, leading to an inflow of foreign currency, which can help stabilise and potentially strengthen the Nigerian Naira.
The CBN recently disclosed that over 75 per cent of bids received during the auctions of government securities held on March 1 and 6, 2024, were from foreign investors, showcasing their growing interest in Nigeria’s financial instruments.
The increase in the stop rates for NTBs over the quarter signals an aggressive tightening of monetary policy by the CBN. The higher interest rates on these government securities could increase borrowing costs across the economy. Businesses might face higher expenses to finance operations or expansion, potentially slowing down economic growth.
