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T-Bill rates rise first time in 16weeks on CBN’s cash reserve ratio hike

For the first time in 16 weeks, fixed-income investors seeking high-yielding securities were not disappointed, as attempts to buy the federal government short-term debt instruments at attractive rates were accepted, thanks to the cash reserve ratio hike by the Central Bank.

A total of N229.63 billion worth of successful transactions was recorded at the Nigerian Treasury Bills (T-Bills) auction conducted Wednesday by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria (FGN), this was the same amount offered at the auction.

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“It is not surprising that the market will react like that. The hike in Cash reserve ratio for commercial banks in the last Monetary Policy meeting from 22.5% to 27.5% is expected to suck up 5% of banks deposit, reducing the money supply,” Paul Uzuma, MD of Halo Nigeria Capital Ltd said.

The fear of a further spike in inflation regime forced the Central Bank of Nigeria (CBN) to undertake a moderate tightening stance at the first monetary policy of 2020, leading to the raising of Banks’ cash reserve ratio (CRR) by 500 basis point, from 22.5 per cent to a new level of 27.5 percent.

The move by the Central Bank is to mop up what the apex bank described as liquidity surfeit in the Nigerian economy, responsible for driving the inflation since August of 2019.

A breakdown of the results for the Treasury bill auction for January 29, 2020, reveals that the allotment for the 91-day and 182-day maturities were oversubscribed by a joint N42.73 billion.

The 91-day instrument was oversubscribed by N21.82 billion, the total amount that was placed on offer stood at N28.02 billion but investors jostled for N49.84 billion. For the 182-day, N33.68 billion was offered for auction but investors bid forN54.59 billion.

“This is the obvious impact of the increase in CRR. The increase took effect immediately and banks are therefore concerned about preserving liquidity,” Ayorinde Akinloye, a research analyst at Lagos-based CSL said.

While investors bid at rates as high as 12 percent, 11.5 percent and 14.4 percent on the 91-day,182-day and 364-day bills, the apex bank lowered rates across the three tenors to 3.5 percent, 4.5 percent and 6.5 percent, respectively. While the rates are the first rise since October 2019, they compare with 2.95 percent, 3.95 percent and 5 percent they cleared on the 91-day, 182-day and 364-day bills at the previous T-Bills auction which saw rates crash to a single digit for the first time in 3years.

“The investors’ panic mode has begun to subside. Due to the availability of other investment options like the Federal Government promissory notes with a higher yield, investors bided at a higher rate. Also, investors are cautious to lock in their funds at a lower rate,” Ayodeji Ebo, Managing Director, Afrinvest Securities Limited.

Stop rates across all maturities took a downward turn from 11 percent in October 2019 to the lowest bid rate for 364 days at 4 percent, as compiled from market auction results for January 15, 2020.

Analysis of the auction result for Wednesday 29 January 2019 revealed that the 364-day maturity was under-subscribed by a tune of N42.73 billion. While a total of N167.93 billion was offered, investors bid were N125.20 billion.

Market analysts see the move by investors, the first in a long time as an indication of unwillingness to stay at the long end of the curve.

According to Ebo, the DMO could not achieve its planned offer for the 364 days due to the higher bid rates. “This may be the end to the downward trend in yields, albeit, we do not foresee any significant rise in yields at the next auction,” he said.

Akinloye expects this to persist in the face of tightening system liquidity “while upcoming maturities are not very significant.”

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