Nigeria’s central bank increased interest rates on short-term debt obligations in a move aimed at reducing naira liquidity and drawing foreign investor inflows.
Interest Rate Hike:
The Central Bank of Nigeria, headquartered in Abuja, sold one trillion naira ($696 million) in treasury bills to both local and foreign investors, offering rates nearly double those of previous offers. Yields for the one-year bill surged to 19%, marking the highest level in 12 years compared to 11.5% at the previous auction on Jan. 24.
Impact on Debt Instruments:
The three-month bill sold at 17.24%, triple the rate offered in January, while six-month notes fetched 18%. The 19% rate on the 364-day bills now exceeds the central bank’s policy rate of 18.75%, narrowing the gap with the inflation rate, which reached a nearly three-decade high of 28.9% in December.
The auction signals the central bank’s efforts to normalize interest rates in Nigeria and attract foreign investors to stabilize the naira amidst economic challenges.
Nigeria has recently eased currency controls and implemented reforms to revamp its foreign exchange market, addressing a dollar scarcity estimated at $2.2 billion by the central bank.
The central bank’s proactive measures aim to bolster investor confidence and strengthen Nigeria’s economic resilience in the face of ongoing financial pressures.