13 November 2017

Nigeria: Money Supply - CBN Mop-Up Hits N3.96trn in 10 Months

In its bid to manage money supply and curb inflation, the Central Bank of Nigeria (CBN) has effected excess liquidity mop-up, using the Open Market Operations (OMO) auctions estimated at N3.9 trillion in 10 months, LEADERSHIP findings have revealed.

OMO sales operation by the apex bank increased significantly in 2017, reaching a record high of about N892.8 billion in September.

As a result of its restrictive monetary policy, the apex bank intensified its mop up of excess liquidity in the system by sale of treasury bills with OMO.

The CBN does not only use OMO; it also uses Treasury Bills and Federal Government Bonds to stem inflationary pressure and curtail liquidity arising from maturing bills.

According to CBN, OMO sales have attracted rates between 17.5 per cent and 18.5 per cent, a move to keep the foreign exchange stable.

CBN governor, Mr Godwin Emefiele, at the Annual Bankers' Dinner hosted by Chartered Institute of Bankers of Nigeria (CIBN) in Lagos at the weekend said, "We have also used Open Market Operations to support our restrictive policy stance".

In his speech titled, 'Policy Options for Sustaining Nigeria's Economic Upturn', Emefiele said, "Based on balance of evidence, expert judgment and boldness, the consensus of the committee was that the welfare gains of rapidly achieving price stability outstripped the benefits of an overriding focus on output stabilization".

Data from the CBN's website revealed that N491.5 billion was auctioned through OMO in January but dropped to N407.5 billion in February.

In March, the CBN mopped-up N380.2 billion, using the OMO, while in April and May it mopped-up N262 billion and N303.3 billion respectively.

The OMO sales closed at N467.6 billion in June and N779 billion in July, the data from CBN website also disclosed.

Furthermore, OMO sales in August hit N800billion mark to N872.86 billion, while in September it dropped to N631 billion and increased to N892.8 billion in October.

The OMO and T-Bills mop-up by CBN continued to drain Naira in circulation, dropping to N1.78 trillion in September.

The N1.78 trillion currency in circulation is the second lowest after N1.76 trillion in July and N1.87 trillion in , as the apex bank continued to mop up excess liquidity in a bid to reduce money supply in the nation's economy.

According to the CBN, naira in circulation was estimated at N1.86 trillion in August 2017, 5.6 per cent increase over N1.76 trillion in July.

The managing director, Maxifund Investments and Securities Limited, Mr. Okechukwu Unegbu, attributed the increased OMO sales to improved economy and policy stance of the CBN.

He noted that OMO sales have impacted on the capital market and money market as investors are reaping from the daily auction.

His words: "OMO is one of the instruments CBN used in controlling money in circulation, making sure the rate of inflation is reduced. Investors will always go to where it is easy for them in terms of reaping their investment, be it short-term or long-term.

"The increased OMO sales by CBN have boosted the economy further and both capital market and money market are benefitting, as policy direction of the CBN has proven working this year".

However, analysts at Cowry Assets, a Lagos based securities firm said CBN sold Treasury Bills (T-Bills) worth N192.60 billion via Open Market Operations (OMO) last week.

According to Cowry Assets report, the outflows were offset by inflows worth N181.01 billion in matured 297-day bills.

It said that in line with its expectations, NIBOR moderated for most tenor buckets: overnight funds rate, NIBOR for 1 month tenor and 3 months buckets fell w-o-w to 8.5 per cent (from 40.18 per cent), 19.13 per cent (from 19.98 per cent) and 20.63 per cent (from 20.85 per cent) respectively.

The analysts at Cowry Assets said, "However, NIBOR for six months tenor bucket increased to 22.70 per cent (from 22.69 per cent). Elsewhere, NITTY moved in mixed directions: yields on the 1 month and three months maturities moderated to 16.78 per cent (from 18.78 per cent) and 17.09 per cent (from 18.17 per cent) respectively; however, six months and 12 months maturities increased w-o-w to 19.23 per cent (from 18.81 per cent) and 18.05 per cent (from 17.91 per cent) respectively.

"This week, CBN will auction treasury bills worth N119.94 billion, viz: 91-day bills worth N32.44 billion, 182-day bills worth N22.82 billion, and 364-day bills worth N64.68 billion respectively.

"We expect a moderation in stop rates in line with declining inflationary trend and improving economic outlook. The auctions will be more than offset by T-bill maturities worth N208.57 billion via OMO. Hence, we expect boost in financial system liquidity and resultant moderation in interbank rates".

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