Kayode Tokede
Following the drive to provide short-term bridging fund to support the federal government budget spending, the Central Bank of Nigeria (CBN) in the first quarter (Q1) of 2022 auctioned N2.1 trillion worth of the Treasury Bills (TBs), an increase of N1.37 trillion it auctioned in Q1 2021.
THISDAY gathered from the CBN’s financial data that a total of 10 auctions were conducted in Q1 2022 as against nine in Q1 2021.
A breakdown revealed that the CBN in January conducted a primary market auction worth N472.8 billion and it increased to N778.21 billion and N880.34 billion between February and March 2022 respectively.
The financial data by CBN disclosed that TBs repaid in the period under review was N826.95 billion in Q1 2022 compared to N941.41billion in Q1 2021.
Commenting on the deelopment, the Vice president, Highcap Securities Limited, Mr. David Adnori attributed the CBN’s TBs auctions in Q1 2022 to increasing borrowing by the federal government to finance budget deficit, maintaining that interest rate on these money market attracted investors’.
Analysts at Coronation Research in its ‘markets in review: titled, “Fixed Income Gains in Q1 2022,” noted that Nigeria’s money markets in the Q1 2022 proved to be liquid with the result that institutional investors subscribed in high volumes to Nigerian T-bill and Federal Government auctions; and they were equally active in the secondary markets.
According to the report, the overall, the secondary market yield for a 1-year T-bill fell by 0.76% (to 4.48% per annum) while the secondary market yield for the average of our basket of FGN bonds fell by 1.61% (to 10.21% pa).
Analysts at Guaranty Trust Holdings Company Limited (GTCO) in their economic outlook for 2022 said: “Going into 2022, the general build-up to the 2023 Elections will very likely result in a system awash with liquidity.
“We believe that the apex bank will tighten the system from the second half of the year just as political campaigns start, to mop-up excess liquidity from the system.
“Although it is unlikely that the CBN will slow down on its discretional CRR debits, we expect more banks to approach the apex bank for the release of a portion of their ‘excess’ CRR to assist them in funding their transactions, payment of regulatory levies/fees, etc.”
Meanwhile, the CBN mopped up a total of N520billion worth of Open Market Operation (OMO) in the period under review compared to N1.45 trillion sold in prior period of 2021.
As gathered from the CBN’s financial data, a total of N1.29 trillion was repaid at the OMO market in Q1 2022 from N2.44trillion repaid in Q1 2021.
OMO is designed to be a short-term market instrument that the CBN uses to control the supply of money in the economy.
Whenever the apex bank believes the inflation rate is high due to increased money supply, it sells OMO at the secondary market to mop-up excess liquidity in the system.
However, the CBN sold N130 billion at its OMO in January, but the figures closed February at N270billion and March at N120billion 2022.
The CBN had restricted Nigerian corporates, and individuals access to the OMO market, also, banks were not allowed to buy T-bills on behalf of borrowing customers.
OMO bills had attracted a juicy interest rate of about 15per cent per annum making them one of the most sought-after securities in Nigeria and indeed emerging markets explaining why foreign investors hold nearly half the size.
The CBN under Godwin Emefiele is understood to have one major mandate; keep the exchange rate stable at all costs and further devaluation of Naira. This is the cornerstone of his monetary policy and underlines every action the apex bank has taken since the President Muhammadu Buhari’s led administration came into power in 2015.
Analysts attributed lack of excess liquidity in the economy to the decline in OMO auction in the Q1 of 2022.
Adnori attributed the decline in OMO auction to low liquidity in macro economy.
He maintained that the purpose of OMO is to adjust the CBN monetary policy and to ensure money in the economy is not much to spike inflation and price stability.
According to him: “The CBN sales T-Bill in two market platforms and the first one primary market auction and secondary market platform called the OMO. The secondary market has a market where banks and other approved dealers change T-Bill among themselves.
“Occasionally, from its monetary policy implementations of either increasing or decreasing money supply in the economy, the CBN intervened in the secondary market which is called OMO market auction.
“When CBN buys in the OMO, it means they wanted to stabilize the economy. Then, if there is so much money in the economy, then enters the secondary market, which is the OMO and sales to withdraw money from the system. The purpose is to improve macroeconomy liquidity. This year, the OMO auction of N520billion means there is no excess liquidity in the economy for CBN to auction.”
The analyst at Analyst at PAC Holdings, Mr. Wole Adeyeye, stated that CBN’s weak activities in OMO market was due to slow economic activities, stating that banks were concerned about lending to the real sector as demanded by the regulating body.
He explained further that, “We are witnessing weak activities in the money market and OMO market auction shouldn’t be an exception.”
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