The Central Bank of Nigeria has offered six and 12-month Treasuries at yields higher than the country’s inflation rate to lure yield-hungry investors and attract dollar inflows.
Severe dollar shortages have been a hallmark of the country’s recession, now in its second year.
The downturn was brought on mainly by lower prices for oil, the Federal Government’s largest source of income, mostly paid for in dollars.
The CBN sold a total of N204.96bn ($650.67m) in bills at the auction on Wednesday. It paid 17.39 per cent for the six-month bill and 18.54 per cent for the one-year paper. The bank’s three-month bill fetched 13.42 per cent.
Annual inflation eased to 16.1 per cent in June.
Most analysts expect the central bank to keep its key interest rate on hold on Tuesday at 14 per cent.
The bank sold N145.96bn of the 12-month bill, N26.60bn of six-month paper and N32.40bn of three-month paper.
The CBN issues Treasury bills twice a month to finance the government’s budget deficit, help manage commercial lenders’ liquidity and curb rising inflation.
Meanwhile, the country’s interbank lending rate rose to around 20 per cent, from five per cent on Thursday, after the CBN sold Treasury bills to mop-up excess liquidity and announced plans to sell dollars to firms.
The interbank rate reflects the level of naira cash liquidity in the banking system.
The CBN said in a notice to commercial banks on Friday it would sell dollars to manufacturers, airlines, fuel importers and agriculture businesses at a special auction to clear their backlog of foreign exchange obligations, Reuters reported.
Traders said the auction and sales of Treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market. That pushed up the cost of borrowing among lenders.
The CBN sold N86.25bn worth of 365-day and 195-day Treasury bills on Friday in a bid to reduce excess liquidity following the government’s distribution of debt refunds to some states on Monday.
Traders said some banks initially quoted as high as 50 per cent for overnight placement but this fell to around 15-20 per cent toward the market close.
“We expect the interbank rate to trend down further after results of the special forex auction are announced and more liquidity flows into the market,” one currency trader said
