The Central Bank of Nigeria (CBN) at the weekend, sold about N51 billion ($168 million) worth of treasury bills to mop up liquidity even as the overnight lending rate traded flat around 10 per cent.
The bank sold N25 billion of 174-day open market operation bills at 18 per cent and N26 billion of the 364-day paper at 18.5 per cent at an auction of Friday.
The transaction brought the total of debt sales last week to N370.67 billion as the CBN has been trying to remove cash from the banking system to contain annual inflation, which hit a more than 11-year high in September.
Financial market analysts said liquidity got a lift by the CBN’s budget allocations for government agencies on Monday and the repayment of matured treasury bills due on Thursday.
Traders said major players were willing to lend their cash at 10 percent for overnight lending, unchanged to Thursday. “We expect the overnight rate to remain stable around the present level next week unless the central bank sustains its cash withdrawal exercise,” one trader said.
The T-bills’ maturities range between three months and a year and would be raised today, according to the CBN. T-bills are marketable short-term money market securities that serve the purpose of raising money for the government and also help in monetary policy management of the CBN.
The CBN issues treasury bills to raise cash to fund the government budget deficit help manage banking system liquidity and curb rising inflation.
The CBN had on August 3, raised N245.18 billion ($773.44 million) worth of T-bills to settle short-term obligations. The CBN issued N45.18 billion in three-month debt, N80 billion of six-month paper and N120 billion of one year bills in a Dutch auction, traders said. Indicative rates for the auction are 16 per cent for three-months, 18 per cent for six-months and 18.5 per cent for one-year bills. The auction’s results will be published the day after the sale.
The main investors in government securities are mainly pension funds and commercial banks which control more than 60 per cent of the market, followed by insurance funds and a few micro-finance institutions.
Yields on fixed income securities have been rising in recent months with the CBN mopping up naira liquidity to try to lure back foreign investors who sold naira assets following the plunge in the price of oil, Nigeria’s economic mainstay.
The bank lifted interest rates by 200 basis points last week to 14 per cent to help fight inflation, which hit a 10-year high of 16.5 per cent in June.