CBN Crashes Liquidity Mop-up, Raises Yields On Treasury Bills
The Central Bank of Nigeria (CBN) drastically reduced its liquidity mop up activities through treasury bills by 81 percent, year-on-year, y/y, to N793 billion in the first quarter of the year (Q1’21).
The apex bank, among other things, controls money supply (liquidity) in the economy by issuing or purchasing secondary market treasury bills, also known as Open Market Operations (OMO) when it wants to reduce money supply, while it injects liquidity by purchasing OMO treasury bills.
Analysis of OMO auctions conducted in Q1’21 shows a sharp decline in the amounts of bills issued and sold by the CBN compared to the same period of last year (Q1’2020).
The CBN reduced the amounts of OMO bills offered by 80 per cent, y/y, to N858 billion in Q1’21, from N4.26 trillion in Q1’2020. Similarly, the amount of bills sold fell by 81 per cent, y/y, to N793 billion in Q1’21 from N4.44 trillion in Q1’2020. In the same vein, the amount of OMO TBs demanded by the banks and FPIs (public subscription) fell by 41 per cent, y/y, to N3.13 trillion in Q1’21 from N5.31 trillion in Q1’2020.
Further analysis of OMO TBs sold in Q1’21 showed that the CBN offered N103 billion worth of 91-Days bills but sold N85 billion while the public subscription stood at N248.6 billion.
Meanwhile the apex bank raised yields (interest rate) on the OMO TBs apparently to increase the attractiveness of the bills to foreign portfolio investors, FPIs, and enhance foreign exchange inflow.
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