Nigeria’s Treasury bills has a negative rate of return, compared to some other top African economies with positive yields, BusinessDay analysis has shown.
Bismarck Rewane, CEO of Financial Derivatives Company Limited, said the current negative rate of return in the Nigerian market is “a recipe for capital flight and chaos.”
Nigeria’s inflation rate as of June 2022 stood at 18.6 percent year on year while its 364-day T-bills interest rate is at 6 percent, showing a negative yield of 12.6 percent.
Data collated from the official websites of the apex institutions of some other top African countries show that the situation is mix.
For instance, Kenya has its 364-day T-bills rate at 9.9 percent in August whereas its year-on-year inflation rate was 8.3 percent in July.
Egypt’s minimum T-bill yield is 14 percent with inflation rate at 13.6 percent as of July, while South Africa’s 364-day T-bill rate is 7.1 percent as of August whereas its June inflation rate was 7.4 percent.
This shows that Kenya has a positive real rate of return of 1.6 percent; Egypt has a positive minimum yield of 0.4 percent, while South Africa has a negative real rate of return of 0.3 percent.
Nigeria’s savings rate is also currently at 1.4 percent, and the 3-year August retail bond is at 10.41 percent. This shows that savings have a negative rate of return of 17.2 percent, while the 3-year August retail bond has a negative rate of return of 8.19 percent.
Faced with the increasing negative rate of return on investments, the Central Bank of Nigeria(CBN) twice this year increased its monetary policy rate by 250 basis points to 14 percent, but has left its other rates practically unchanged.
According to Rewane, the CBN is divorced from reality while its monetary policy rates have lost touch with the market reality.
“Nobody saves money at the policy rate but at the treasury rate and the other rates,” Rewane said in an interview on Arise News recently.
“So the interest rate structure is divorced from reality in an alternative universe, whilst the policy rate is divorced from the markets,” he added.
The amount of foreign investments attracted by Nigeria fell year-on-year by 17.5 percent to $1.6billion in the first quarter of 2022, from $1.9 billion in the first quarter of 2021, the lowest year-on-year investment decline since the first quarter of 2017, according to the latest data published by the National Bureau of Statistics(NBS).
Rewane added that people have no confidence in the market because they can see that there is confusion in the minds of policymakers, noting that policy makers have to engender confidence in the minds of investors that the nation’s currency is still a store of value and they should show clarity on what they want to do.
To achieve this, Rewane suggested that policymakers will have to adopt the crawling peg policy to fix the protracted foreign exchange crisis and also put enough supply into the foreign exchange market to reduce the foreign exchange volatility.
“If they increase interest rates, it will encourage more savings, which then automatically reduces consumption. Then, demand for goods and services will decline in the short term, which will bring prices down”, Rewane said.