The Central Bank of Nigeria (CBN) was in the market on Thursday to mop up N400 billion via Open Market Operation (OMO) but investors withheld their funds as the regulator absconded from their demand for a higher rate.
Consequently, after the OMO auction exercise, the CBN was able to sell N48.05 billion out of the total amount offered (N400bn) at the stop rate of between 11.59 percent and 13.00 percent for the various tenor days of the instrument.
Open Market Operation simply means the buying and selling of government security instruments, which enables a central bank to control the supply of money in the banking system.
“Investors demanded for higher rates as observed in the range of bids especially for the long-term bill. However, the CBN did not succumb to investors’ demand, hence the low sales level,” Ayodeji Ebo, managing director, Afrinvest Securities Limited, said in response to BusinessDay.
He said the CBN may issue another OMO on Friday (today) at a slightly higher rate due to the low sales on Thursday.
“In the absence of OMO, demand will shift to the secondary market leading to lower rates,” Ebo said.
A summary of the OMO auction shows that N100 billion each was offered for the 91 days tenor and the 189 days at the stop rate of 11.59 and 11.79 percent, respectively. The maturity date for the 91 days instrument was fixed at November 28, 2019. Investors demanded a bid range of between 11.59 percent and 12.50 percent, leading to N12.50 billion under-subscription, but a total sale of only N1 billion was recorded.
The total subscription for the 189 days OMO instrument stood at N7.31 billion, which was far too below the initial amount offered. The offer which matures on March 5, 2020 recorded total sales of N1.38 billion at a stop rate of 11.79 percent, although the investors earlier demanded between 11.79 and 13.10 percent rates.
For the 364 days tenor, the CBN offered a total of N200 billion but the sum of N45.67 billion was sold after the investors subscribed (N290.83bn) above the initial offered amount at a bid range of between 12.99 percent and 14.50 percent. The offer, which matures August 27, 2020, was sold at a stop rate of 13 percent.
Consequently, the overnight inter-bank rate, the rate at which banks borrow from and lend to one another, declined by 5.43 percentage point to 7.36 percent on Thursday from 12.79 percent the previous day.
Also, Open Buy-Back (OBB), which is the money market instrument used to raise short-term capital, decreased from 11.86 percent on Wednesday to 6.29 percent on Thursday, according to data from the FMDQ.
The CBN on Wednesday auctioned N208.59 billion Nigerian Treasury Bills (NTB) at the primary market and the investors grabbed all the offers due to improved rate.
Godwin Emefiele, governor of the CBN, said recently in London that the regulator would offer more OMO auctions to counter the upcoming maturities due in September /October.
HOPE MOSES-ASHIKE
