CBN Intensifies Excess Liquidity Mop Up

Godwin Emefiele

Obinna Chima

Following the closure of Nigeria’s Treasury Bills (NTBs) issue calendar for 2018, the Central Bank of Nigeria (CBN) has intensified its mop up of excess liquidity in the system through open market operations (OMO).

OMO is one of the central bank’s liquidity management instruments, whereas treasury bills are government debt, basically to support the budget deficit.

THISDAY’s findings showed that the central bank auctioned OMO bills totaling N147.11 billion on Monday and wednesday.

A breakdown of this showed that while wednesday, the regulator auctioned N400 million of 92-day bills; N1.19 billion of 183-day bills and N90.89 billion of 351-day bills; it sold a total of N54 billion bills on Monday. The breakdown of Monday’s issuance was N14.06 billion of 192-day bills and N40.56 billion of the 353-day instrument.

According to the NTB calendar for the fourth quarter 2018 that was released earlier by the CBN, there would not be any treasury bills auction this month. The idea was not to roll over any maturing instrument this month, but to fully repay.

“What the CBN has been doing since Monday is to increase the frequency of OMO so as to mop up the excess liquidity in the market,” an analyst at Ecobank Nigeria, Kunle Ezun explained.

But the Head of Research and Strategy at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, pointed out that the limited investment outlets in the system might cause interbank rates to drop this month.

He explained, “In fact, we expect that the yields on fixed income securities may likely drop marginally. The CBN had announced on behalf of the Debt Management Office that they are not going to auction treasury bills this month.

“They just received $2.9 billion from the sale of Eurobond and therefore, they are going to pay back the maturing obligation in December, so there is no need for them to borrow money in the domestic market this month. That was exactly what they did last year.

“We also expect that this month when the US Federal Reserve meets, they are going to increase rate by additional 25 basis points. If that happens, yield over there may go up.

“So, if a large part of the maturing securities in Nigeria is held by foreign investors, they may want to take their money out.

“But our findings showed that the bulk of money that would be maturing is OMO, not treasury bills and most times it is the Pension Fund Administrators (PFAs) and banks that invest in OMO.”

He advised fixed income investors to “buy bonds at the current level because they are very attractive. Secondly, buy the longest end of the treasury bills which is the 361-day bills.

“Thirdly, there are lots of opportunities in the Eurobond market for investors who have dollars.”

The Managing Director, Afrinvest Securities Limited, Mr. Ayodeji Ebo, pointed out that maturing OMO bills worth N684.8 billion would hit the system this week.

CBN Governor, Mr. Godwin Emefiele, last week predicted that monetary policy stance would remain judicious, research-driven, adequate and supportive of the real economy subject to underlying fundamentals.
He pointed out that the current tight stance was expected to continue in the near-term, especially in view of rising inflation expectations and exchange market pressures.

He explained, “Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilisation.

“With favourable oil price developments and continued efforts at driving indigenous production in high-impact real sector activities, especially agriculture and manufacturing, Gross Domestic Product (GDP) is expected to pick-up in the remaining two quarters of 2018.”

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