Nigeria hikes rate on treasury bills to lure dollar inflows
TLDR
- Nigeria's one-year bill auction exceeded expectations with overwhelming demand, indicating a tightening of monetary policy.
- The Central Bank of Nigeria sold 908.75 billion naira ($632 million) worth of bills at rates nearly double those of previous auctions.
- Yields on the bills surged to 19%, the highest level in 12 years, surpassing the central bank's policy rate and aligning with Nigeria's high inflation rate of 28.9%.
Nigeria's one-year bill auction saw overwhelming demand, surpassing expectations by over two-fold, following the Central Bank's decision to raise the interest rate on the short-term debt instrument. This move indicates a forthcoming tightening of monetary policy.
The Central Bank of Nigeria, based in Abuja, successfully sold 908.75 billion naira ($632 million) worth of bills to a mix of local and foreign investors, offering rates nearly double those of previous auctions. Yields on the bills surged to 19%, marking the highest level in 12 years, up from 11.5% in the preceding auction held on January 24th.
The 19% interest rate on the 364-day bills now exceeds the central bank's policy rate, currently standing at 18.75%, for the first time. Additionally, it closely aligns with Nigeria's inflation rate, which reached a nearly three-decade high of 28.9% in December.
Key Takeaways
By issuing the one-year bills at a yield surpassing the benchmark interest rate, Nigeria is signaling a shift towards a tighter monetary policy stance. This move is expected to set the tone for the upcoming meeting of the Monetary Policy Committee (MPC) later this month. The MPC, which has not convened since July, is scheduled to meet on February 26th and 27th, with economists anticipating a significant increase in interest rates. Notably, other short-term debt obligations were also sold at elevated rates: three-month bills were issued at 17.24%, marking a threefold increase from the January offer of 5%, while six-month notes were sold at 18%. The auction indicates the central bank's aim to normalize interest rates in Nigeria, the most populous nation in Africa, and attract foreign investors to stabilize the naira.
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