In recent auctions, the central bank has offered short-term paper, known as OMOs (open market operations), at significantly higher yields compared to government debt of similar tenor. The 365-day OMOs, sold to banks and offshore investors, fetched 17.5%, surpassing the 8.39% yield on government Treasury bills with the same maturity.Thank you for reading this post, don't forget to subscribe!
Despite the lower yield, domestic pension funds, constrained in their investment choices, heavily invest in government bills.
Sunmbo Olatunji, Group Head of Treasury at Access Bank Plc, noted that the central bank is pushing for higher rates. Speaking at an investor conference in Lagos, she mentioned the removal of the cap on interbank borrowing rates, allowing the interbank rate to reach 22-23%. This move signifies the central bank’s reliance on market forces to determine rates.
Following the monetary policy committee meeting in July, where the benchmark rate was raised to 18.75%, inflation surged to a 27-year high of 28.9%.
President Bola Tinubu’s reforms, including abolishing fuel subsidies and easing the exchange-rate regime, contributed to the inflationary pressures. The rising inflation has fueled expectations of aggressive rate hikes.
While the schedule for the next MPC meeting is pending, the central bank has hinted at an inevitable upward adjustment in rates, emphasizing the evolving monetary policy stance.