Nigeria Desperate For Forex As T-Bills’ Rates Hike Further
Desperate for Foreign Exchange (forex), the Central Bank of Nigeria (CBN) increased the yield of its Treasury Bills more than double, signaling a significant shift away from the negative yield remarkable of most fixed-income instruments auctioned under the now-suspended CBN governor, Godwin Emefiele.
At the latest auction on July 26, investors were offered Bills with 91-day, 182-day, and 364-day tenors at quite attractive interest rates far above July 12 stop rates, making investors over-subscribe significantly.
At the auction, CBN offered the 91-day bill of N1.737 billion at a stop rate of 6 percent as against the previous stop rate of 2.86 percent, indicating an increase of 314 basis points or 3.14 percentage points higher.
Investors subscribed to a total amount of N7.846 billion but were allotted N2.846 billion with a maturity date of Oct. 26, 2023.
For the 182-day bill, the CBN offered N1.263 billion at an 8 percent stop rate, 450 basis points or 4.5 percentage points higher than the previous 3.5 percent.
Again, investors over-subscribed to the tune of N5.174 billion but were freely allotted all their subscriptions.
For the 364-day bill, CBN offered N261.327 billion in a bid range of 3.5 percent to 16.93 percent.
Though investors over-subscribed to a total of N383.884 billion, the apex bank allotted only a total of N255.044 billion, about N6.283 billion below the offer target at a stop rate of 12.15 percent, 621 basis points or 6.21 percent higher than the previous 5.94 percent.
Thus, the CBN raised a total sum of N264.328 billion as targeted. Though investors over-subscribed by N126,001,824,504 to N390,330,109,504 as against the N264,328,285,000 target offer, the apex bank took a little above the 91-day and 182-day offer but below the 364-day offer.
Analysts said that the significant hike in interest rates signified desperation for foreign exchange inflows desperately needed by the apex bank to clear the backlog of forex demand which pressured the exchange rate of Naira to the dollar to an all-time low.
As of Tuesday last week, the Dollar traded at N830/$1 on the parallel market but rose to N860/$1 at the close of trading on Friday. At the official I&E window, the local currency also depreciated by -0.26 percent to N775.76/$1.
The Naira further depreciated after the Monetary Policy Committee (MPC) of the CBN raised the benchmark interest rate by 25 basis points to 18.75 percent last Tuesday, citing the need to sustain efforts at anchoring inflation expectations, narrowing the negative interest rate gap, and improving investor confidence.”
Earlier before now, Olumide Adesina, a financial services expert, noted that “It will be difficult for Nigeria to attract much investment from foreign portfolio investors (FPIs) when US Treasury bonds that are much safer offer more attractive returns.”
The US has increased interest rates in recent times, making Treasury bonds and other fixed-income instruments more attractive than ever before.
Writing on his official Twitter handle @TokunboAdesina, the financial expert used graphic representation to demonstrate how the US treasury bonds outperformed during three, six and 12 months after the end of the US Fed’s tightening cycle.
Commenting on the development, the Chief Executive Officer of Lagos-based Wyoming Capital and Partners, Tajudeen Olayinka, said it is a signal to investors that CBN’s new leadership wanted a higher interest yield on government securities.
The target, he said, was foreign investors and foreign exchange inflows to create liquidity which in the long run would force the exchange rate to moderate in favour of the local currency.
He said “By the time foreign investors begin to come in to participate in the market, it will boost forex liquidity, and force the exchange rate to go down so that the market will strike an equilibrium and then moderate yields.
“It is better to allow forex inflows to moderate interest rates than to allow local investors to moderate interest rates. When interest rate is moderated by foreign inflows, it has a way of stabilising exchange rate and interest rate to a level that liquidity can support,” said the investment expert.
The implication, according to him, is that the government is borrowing at extra cost stressing that it is not easy to sustain it. He, therefore, concluded that when the market attains an equilibrium, the interest rate could be reverted to a more sustainable rate.
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