CBN raises N1trn in TBill auction

By Uzezi Samuel

Sources involved in forex reforms at the Central Bank of Nigeria have indicated that the Monetary Policy Committee (MPC) is contemplating an increase in rates by 100 to 300 basis points in their forthcoming meeting.

The MPC is set to hold its first meeting under the tenure of Mr. Olayemi Cardoso as Governor, scheduled for Monday, February 26 and Tuesday, February 27, 2024.

The initiation of this shift in monetary policy is expected to be evident in the CBN’s bi-weekly treasury bills auction which was held on Wednesday, February 7th, 2024.

In a recent auction held in January, the CBN sold treasury bills totaling N381.2 billion across various maturities: 91, 182, and 364 days.

The interest rates for these maturities were recorded at 5 per cent for the 91-day bills, 7.15 per cent for the 182-day bills, and 11.54 per cent for the 364-day bills, respectively.

The auction on Wednesday marked a significant escalation in the volume of treasury bills, with about N1 trillion up for auction.

This includes N600 billion allocated for the 364-day bills, and N200 billion each for the 182-day and 91-day bills.

The N600 billion earmarked for the 364-day tenure represents an unprecedented figure, and the cumulative N1 trillion sale is unparalleled, with records dating back to 2001.

Nigeria’s money supply stood at over N78 trillion as of December 2023, a factor many analysts attribute to the nation’s accelerating inflation.

Despite the increase in money supply, Nigeria’s output growth has remained sluggish, exacerbating pressure on the exchange rate.

By tightening monetary policy through higher interest rates and larger Treasury bill auctions, the CBN aims to curb inflation and stabilize the exchange rate, thereby fostering a more balanced economic environment.

The decision to significantly raise the volume of treasury bills auctioned, especially for the 364-day tenure, underscores the CBN’s commitment to addressing the liquidity surplus in the economy.

By absorbing excess liquidity, the CBN endeavors to counter inflationary pressures and support the naira’s value, which is crucial for economic stability and growth.

CBN Governor, Yemi Cardoso in a recent TV interview, said, “In the short term, we have put in significant work, and we are witnessing results in improving the market structures and removing all the bottlenecks stifling the supply of FX into the country.”

“We have addressed the challenges to remittance flows, reduced the ability of banks to hold on to positions, and more importantly, we now have the export proceeds from the national energy sector flowing back through the Central Bank. We have also initiated several short-term measures to make naira assets attractive to foreign investors”

“The eventual stability of the Naira will be driven by our ability to address the fundamental issues affecting our economy…bring inflation under control and promote the growth of Nigerian businesses such that we eventually export much more than we consume as a nation.”