Money market rates up since Cardoso took over CBN

Overnight interbank rates, which are short term money market interest rates that banks charge each other for overnight lending, rose sharply by 21.28 basis points between August and November 2023, following the tightening policy stance of the Central Bank of Nigeria (CBN).

Overnight rate increased to 23.88 percent as of November 20, 2023 as against 2.60 percent recorded on August 31, 2023, according to market reports by FSDH Research.

Analysts see this as another tool the CBN is using to control money supply and rein in inflation, instead of the regular Monetary Policy Rate (MPR).

At the Nigerian treasury bills secondary market on Monday November 20, 2023, average yield across the curve rose to 12.84 percent as against 6.72 percent on August 31, 2023.

Yield across the curve at the Open Market Operation (OMO) bills market has increased to 14.71 percent as of Monday November 2023, from 11.04 percent as of August 31, 2023, before Cardoso became the CBN governor.

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On Wednesday, the CBN is scheduled to conduct a Primary Market Auction to roll over NT-bills maturities worth N211.71 billion across 91-day (N9.96 billion), 182-day (N1.82 billion), and 364-day (n199.93 billion) tenors.

“Monetary policy was not effective under past governors, even though they were raising the MPR. The current governor has stayed silent. But he is working behind the scenes to repair the transmission mechanism. The reason money market interest rates, within the control of monetary policy, have been rising since 25 October 2023,” Kaliba Bilala, founder Tanabit, a financial data analytics company, said.

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He said the next treasury bills auction this week will see an increase in the auction yields. And, naturally, rates will continue to go up without changing the MPR itself, adding that a bills auction will hold this week (tomorrow). It’s going to swing from deposits to borrowing.

Olayemi Cardoso assumed duty as the acting governor of the Central Bank of Nigeria on September 22, 2023.

Nigeria’s Central Bank postponed a rate-setting meeting, known as the Monetary Policy Committee (MPC) for a second time since Cardoso was nominated to the post in September. On September 21, 2023 CBN postponed MPC scheduled for September 25-26, 2023.

“Even if the MPC holds the meeting today, the CBN’s hawkish stance has persisted, and the market has been anticipating a rate hike. We witnessed OMO auctions two weeks ago and a 364-day T-bills auction with yields as high as 16-17 percent (used as a liquidity mop-up mechanism), suggesting the possibility of an inverted yield curve, where short-term rates exceed long-term rates. This move aims to curtail inflation by reducing money supply through attractive returns on short-term instruments,” Sesan Adeyeye, a portfolio manager at ARM HoldCo, said.

The CBN governor, who has kept his plan for a new CBN to his chest, would seize the moment at the forthcoming Bankers’ Night, a yearly event organised by the Chartered Institute of Bankers of Nigeria (CIBN), this weekend to make a bold statement and unveil key policy directions, Imran Muhammad, APC member said on his X handle.

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“My assumption would be that the CBN will reiterate the points he made in his Senate confirmation – Nigeria’s monetary policy will normalise and focus on battling inflation and providing macro stability .. and that he will encourage banks to support Nigerian growth by lending to the private sector, Charlie Robertson, head of macro strategy, FIM Partners UK Ltd, said.

For Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, “It is like the CBN is going to tell us some of the things they are planning to do. What most people are interested in is the dollars. When and how are they getting the dollars? That is where the conversation and questions may likely go. When is the $10 billion coming and how do they intend to get it? I think that is the most fundamental thing that anybody wants to hear.”