Less than 24 hours after the Central Bank of Nigeria (CBN) aggressively raised its monetary policy rates on Tuesday, fixed income rates rose sharply to unprecedented levels on Wednesday, indicating desperation for foreign exchange inflows.
The one-year Treasury Bills rate for the month of September 2022 rose to a record 12 per cent, up from 8.5 per cent last month. The rate for the 91-day treasury bills also improved to 6.49 per cent, up from 4 per cent recorded in the month of August 2022.
Traders said that the rates are an irresistible sign of desperation for inflows, stressing that it is going to hurt the capital market.
On Tuesday, the CBN raised the benchmark interest rate to 15.5 per cent, and Cash Reserve Ratio (CRR) to 32.5 per cent up from 14 per cent and 27.5 per cent respectively. The apex bank said its aggressive approach was necessitated by the urgent need to rein in galloping inflation currently standing at 20.52 per cent, the highest in decades.
On Wednesday’s auction, the Central Bank offered to raise a total of N108.71 billion for the one-year Bill but recorded a total subscription of N233.32 billion, representing an oversubscription of 114.6 per cent.
However, only N173.81 billion was allotted by the apex bank, which is 59.9 per cent higher than the intended offer of N108.71 billion. The offer for a 91-day tenor was heavily undersubscribed despite hiking the rates to 6.49 per cent up from 4 per cent in August.
Similarly, the 182-day tenor Treasury Bill recorded a total subscription of N3.55 billion in contrast to the offer amount of N20.35 billion, representing a subscription rate of 16.4 per cent while the stop rate stood at 7.5 per cent.
The significant improvement in the t-bills rate notwithstanding, the yield was negative at a mere 8.52 per cent, indicating a cautious attitude.
Commenting on the T-bills rate hike, a dealer told our correspondent that the central bank is desperate over reining in inflation but is using the wrong approach.
The broker who did not want his name mentioned for fear of stigmatization said the apex bank’s approach is counterproductive and will end up stifling economic growth. He said, the capital market would take the hit in the long run, but little or nothing positive results would be achieved.
“No matter how aggressive CBN gets to hike rates, it can neither rein in inflation using approaches that stoke it, not attract investors into throwing in hard currency in an economy where they know their investment may be trapped.
“You cannot use fire to fight a fire. In the end, you burn up everywhere without rescuing anything. The equity market will take the hit but beyond it, CBN will realise too late it has achieved nothing except destroying the markets,” said the financial analyst.
The analyst urged the central bank to return to the drawing board, and come up with new approaches, stressing that the apex regulator cannot be doing the same old thing and expect different results.
