FG sells N173bn Treasury bills at steady yield

The Central Bank of Nigeria (CBN) sold N172.85 billion ($550 million) treasury bills on Wednesday with yields unchanged from the previous auction, held in the third week of the last month in 2016.

The apex bank sold N115.85 billion of one-year debt at a rate of 18.68 percent, the same as the previous auction, traders said.

They said the central bank also sold N35 billion of 91-day paper at 14 percent and N22 billion of six-month bills at 17.5 percent, unchanged from the previous auction.

Subscription at the auction came to 194.12 billion naira, well up from 42.68 billion naira at the previous auction.

Nigeria’s central bank issues treasury bills regularly to help lenders manage their liquidity curb rising inflation and provide naira to help the government fund its budget.

However, due to the sharp drop in the country’s oil revenue, the Federal Government has said it will raise a total sum of N2.5 trillion for its 2016 budget deficit through effective tax revenue, local and international borrowing.

It is worthy to note that Nigeria’s government issues treasury bills to raise cash to fund the budget deficit manage banking system liquidity and curb rising inflation.

Meanwhile, financial analysts at Ecobank said that the inflation rate, at 18.48 percent since November, is likely to ease slightly in the coming months but will remain elevated.

“The recent slowdown in core inflation points to lower price pressures in the coming months–price pressures will ease slightly on the back of higher base effects but ongoing tight foreign liquidity, production constraints, higher utility and transport and food prices will keep inflation elevated (above CBN’s inflation target range of 6-9per cent), they explained.

They said CBN’s Monetary Policy Rate (MPC) will likely remain high at 14 per cent, and given ongoing market uncertainties, specifically concerns over inflation and exchange rate in a low oil price environment, and the need to ensure positive real returns on assets, the scope of a further hike is high.

Nigeria is facing one of its most challenging times as government revenues are being affected by the low price of oil at the global market, while the fall in the value of the naira saw an economic downturn in the import-dependent economy.

Inflation has risen to a high of 18.4 percent as the Gross Domestic Product shrank by 2.24 percent year-on-year in the third quarter of 2016, following a 2.06 percent decline in the previous period and compared to market expectations of a 2.58 percent decline.

The increase of the Monetary Policy Rate to 14 percent last year had also increased the cost of credit and the rising nonperforming loans in the banking industry has led to banks cutting back on granting facilities.