Recent indications point towards a potential increase in Nigeria’s interest rates ahead of the upcoming treasury bills auction, signaling a shift towards a tighter monetary policy by the Central Bank of Nigeria (CBN). Scheduled for February 7, 2024, this auction is expected to see the CBN raise a record N1 trillion, a historic figure based on CBN data.
Insights from sources involved in forex reforms at the CBN suggest that the Monetary Policy Committee (MPC) is considering a rate hike of 100 to 300 basis points, aligning with Bloomberg’s projection of a 500 basis points increase.
The treasury bills auction scheduled for February 7th is anticipated to offer higher interest rates than usual, along with an increased volume of treasury bills. A research report from Meristem also predicts a surge in interest rates, citing the government’s escalating borrowing needs.
In the recent January auction, the CBN sold treasury bills totaling N381.2 billion across various maturities, with interest rates ranging from 5% to 11.54%. However, the forthcoming auction is poised to mark a significant escalation, with approximately N1 trillion up for auction, including N600 billion for the 364-day bills, and N200 billion each for the 182-day and 91-day bills.
This strategic adjustment in monetary policy reflects the CBN’s response to Nigeria’s economic challenges, aiming to curb inflation and stabilize the exchange rate. By tightening monetary policy through higher interest rates and larger treasury bill auctions, the CBN seeks to address the liquidity surplus in the economy, counter inflationary pressures, and support the value of the naira.
In a recent TV interview, CBN Governor Yemi Cardoso outlined short-term measures to attract forex inflows, including raising rates and removing capital controls. He emphasized the importance of addressing fundamental economic issues to achieve exchange rate stability.
As stakeholders await the outcomes of the CBN’s monetary policy adjustments, the broader implications for Nigeria’s economy remain a subject of keen interest. The effectiveness of these measures in curbing inflation and stabilizing the exchange rate will shape the country’s economic trajectory in the coming months.
In the secondary market, treasury bills traded bearishly, with the average yield increasing by 2.06% to settle at 11.91%, indicating sell-offs across all tenors as bears dominated the naira fixed-income market.