The Central Bank of Nigeria (CBN) is offloading long-dated treasury bills at higher yields than the secondary market to mop up naira liquidity before next week’s start of interbank currency trading, traders said on Friday.
The apex bank sold N205.9 billion worth of one-year bills on Friday at 13.5 percent, compared with the secondary market which is currently trading at 10.81 percent.
It offered N78 billion bill on Thursday, following the CBN Governor’s announcement that the bank would begin the market driven foreign currency trading on Monday, abandoning the unrealistic 16-month currency peg.
An exclusive BusinessDay report had noted the CBN’s intention to aggressively mop up liquidity surfeit in the nation’s banking system before unveiling any new foreign exchange (FX) policy.
Sources familiar with the matter tell BusinessDay that because the naira liquidity in the banking system is large, most of the idle funds would end up being used to trade in the FX market once the interbank market is re-opened.
“In order to reduce funds available for targeting the FX market, the CBN would need to mop up this excess liquidity, using Open Market Operations (OMO),” a government source said.
Offering attractive OMO rates and long tenor bills in the market can help achieve this outcome, market sources tell BusinessDay.
The government and the Central bank expects that once excess liquidity in the banking system is cleared and other factors such as the backlog of FX demand (estimated at $4 billion), expected inflows of $2.5 billion from a Chinese Bank and an African Developmental Finance Institution, among others are dealt with, the interbank FX market will resume the usual price-driven quotation using Reuters Order Matching System.
Market sources tell BusinessDay the Reuters system is reliable and trustworthy because it shows the real time price offers being made by FX traders, and therefore removes the noise and dissatisfaction around the present order-based two-way quote system.
LOLADE AKINMURELE
