In the bid to improve dollar liquidity in the currency market, the Nigerian central bank (CBN) on Wednesday issued what we could term a surprise auction on treasury bills without prior announcement.
Although this is in line with analysts expectation following pressure on naira and the huge liquidity expected to mature before the end of the year in which the CBN may seek to mop up.
According to a report by Reuters, the CBN sold a total of N114.6 billion ($375 million) worth of treasury bills the first of such since mid-July.
This was 14.6 percent above initial intention to offer for sale treasury bills worth N100 billion on bills maturities of 3, 6 and 12 months respectively. Upon offer for sale on Wednesday, the apex bank got bids worth N454.9 billion with one-year paper accounting for 80 percent of total bid, Reuters reported.
Against the last auction at 12.25 percent, the apex bank sold most of its 1-year T-bills at 12 percent, also 6 percent points lower than 18 percent a year ago.
The actions of the CBN is on the back of building downward pressure on the Naira traced to the bearish trend witnessed in Brent crude oil price which had fallen 4.22 percent to $56.45 as at 6.12 pm on Wednesday, lowest level since the 3rd of January.
According to data collated from FMDQ, naira weakened against the dollar by 0.02 percent to N362.83/$1 on the I&E Nigeria FX window as at the close of trading on Wednesday.
Coupled with falling yields in the Nigeria domestic bond market which has seen foreign investors book profits on local bonds responding to yield trend.
Recall in the bid to boost the Nigerian private sector and invariable grow the economy, the CBN seized its observed trend of a weekly OMO auction in July, hence mandating deposit money banks to lend more or face rise in minimum reserve requirements to 50 percent.
This saw loan to deposit ratio of banks increased to 60 percent which some analyst fear it mat worsen bank’s Non-performing loans (NPL).
According to a trader interviewed by Reuters, “it is a surprise auction, this one-off might not help dollar liquidity unless they become consistent in the offering.”
“N9.6 trillion is going to mature between August and December this year and this very huge,” Ayo Akinwunmi, head of research FSDH, told BusinessDay, “even though the CBN may not want to increase rate on the treasury bill in the primary market, they will increase on the secondary market to manage the huge liquidity in the money market.”
This amount of liquidity if not properly managed my build upwards inflationary pressure, hence the CBN’s auction actions which we may likely see more going forward.
“the CBN is basically tightening liquidity in the money market due to volatilities in terms of the global outlook, oil prices and escalation of the US and China trade conflict which will definitely have effect on EM and FM risk appetites,” Abimbola Omotola, Macro, Fixed income and Currency specialist told BusinessDay.
“a sizeable chunk of OMO maturities due this year are held by foreign investors who will be looking to either reduce their exposure to Nigeria on the back of these factors as well as relatively lower yields on naira assets,” Omotola explained further.
He explained further that for the CBN to further attract these foreign investors, we may see at some point higher rates, “today’s rate is the CBN sending a signal since haven’t done this for quite some time,” he stated.
“we are likely going to see more of this to tighten liquidity,” Omotola told BusinessDay.
DAVID IBIDAPO
