CBN scrambles quick treasury bill auction to strengthen naira

The Central Bank of Nigeria held an unscheduled Treasury bill auction on Wednesday, selling a total of N114.6bn ($375m) worth of treasury bills to strengthen the naira.

This auction is the apex bank’s first since mid-July as it seeks to boost dollar liquidity in the currency market after the naira fell, traders told Reuters.

The bank offered to sell N100bn of bills in maturities of three, six and 12 months but got bids of N454.9bn, with the one-year paper winning around 80 per cent of the demand.

A trader was quoted by Reuters as saying, “It is a surprise auction. I do not know why they are floating it without prior announcement.

“This one-off may not help dollar liquidity unless they become consistent in the offering.”

Pressure has been building on the naira as oil prices dropped and foreign investors booked profits on local bonds in response to falling yields.

The treasury bills secondary market closed on a bearish note last week largely due to tightened system liquidity (N144bn short as at Monday).

Sell–off was largely witnessed on the short-term and medium-term bills, which caused yields to rise by 19 basis points and 11bps week-on-week, respectively.

On Wednesday, the CBN sold the most-liquid one-year bill at 12 per cent, lower than the 12.25 per cent it paid at its last auction in July and compared with as high as 18 per cent it fetched a year ago.

Forex trading was thin on Wednesday as the naira was quoted at 363.50 per dollar on Monday and Tuesday, compared with 362.50 at the end of last week as foreign investors repatriated funds.

The CBN was conducting regular weekly Open Market Operation auctions until July when it switched focus to trying to boost economic output following recession by telling banks to lend more or face a rise in minimum reserve requirements.

There was no OMO auction by the apex bank last week, despite an estimated OMO maturity of N88.7bn, Federation Account Allocation Committee allocation of N360bn and bond coupon payment of N46bn.

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