Recent indications point towards a looming increase in interest rates in Nigeria as the Central Bank of Nigeria (CBN) gears up for an unprecedented treasury bills auction, signaling a shift towards tighter monetary policy.
Set to take place on February 7, 2024, the CBN aims to raise a record N1 trillion, a historic milestone according to CBN data.
Insights gleaned from sources familiar with forex reforms at the CBN suggest that the Monetary Policy Committee (MPC) is contemplating a rate hike ranging between 100 to 300 basis points during their upcoming meeting, aligning with projections from a Bloomberg report anticipating a hike of around 500 basis points.
These policy adjustments are expected to be reflected in the CBN’s bi-weekly treasury bills auction scheduled for the same day. Market analysts anticipate higher interest rates at the auction, along with an increased volume of treasury bills on offer.
A recent research report from Meristem also indicates a potential rate hike, citing the escalating need for government borrowing.
The latest data from January’s auctions reveal that the CBN sold treasury bills totaling N381.2 billion across various maturities, with interest rates ranging from 5% to 11.54%.
For the forthcoming auction, approximately N1 trillion will be up for grabs, with N600 billion allocated for 364-day bills and N200 billion each for 182-day and 91-day bills.
The surge in inflation, coupled with sluggish output growth, has intensified pressure on the exchange rate, prompting the need for strategic monetary policy adjustments.
To tackle these challenges, the CBN is implementing short-term measures to attract forex inflows, including potential rate hikes and the removal of capital controls.
In a recent TV interview, CBN Governor, Yemi Cardoso, emphasized the importance of addressing fundamental economic issues for exchange rate stability, highlighting the necessity of boosting exports and controlling inflation.
As stakeholders eagerly await the outcomes of the CBN’s monetary policy adjustments, the broader implications for Nigeria’s economy remain under scrutiny.
The effectiveness of these measures in curbing inflation and stabilizing the exchange rate will be pivotal in shaping the country’s economic trajectory in the coming months.
Credit: Nairametrics
