CBN to Ease Monetary Policy Stance

CBN Governor, Sanusi Lamido Sanusi

By Obinna Chima

There are strong indications that the Central Bank of Nigeria (CBN) may commence the gradual easing of monetary policy as the regulator has relaxed its aggressive mop up of liquidity this quarter.

THISDAY findings showed that the apex bank would sell less treasury bills this quarter, compared to the first quarter of the year.
 

Specifically, the CBN plans to issue to total of N740.629 billion treasury bills this quarter. The amount represented a reduction by 10.4 per cent, compared to a total of N826.310 billion issued in the first quarter.

 

The treasury bills are monetary policy instrument used to control the volume of money supply in the economy. As a result of its restrictive monetary policy, the apex bank had intensified its mop up of excess liquidity in the system by sale of treasury bills at the Primary Market Auction (PMA). The funds realised from the sale of the fixed income instrument are also used to fund fiscal deficit as well as shortfalls in federal government’s revenue.

The breakdown of the “Nigerian Treasury Bills Issue Programme” for second quarter obtained by THISDAY showed that five auctions would be held at the bi-monthly market this quarter. For 91-day treasury bills, the CBN intends to issue a total of N110.724 billion this quarter, while for the 182-day treasury bills a total of N163.491 billion would be offered to investors. Also, for the 365-day treasury bills the apex bank plans to issue a total of N466.414 billion this quarter.

 

However, a total of N740.629 billion treasury bills are expected to mature this quarter.

 A senior analyst at BGL Securities Limited, Mr. Femi Ademola, identified the stable exchange rate as a factor that influenced the demand for treasury bills and other fixed income securities.

He added: “The yield is attractive and the exchange rate is stable. That is very key for any investor, especially the foreign investors.”

 

On his part, Head of Research, Sterling Capital Limited, Mr. Sewa Wusu, said the rising appetite for treasury bills was because of its high yield and low risk. He also explained that banks invested in treasury bills to fulfill statutory requirement by the banking sector regulator.

 

“Basically, treasury bills are fixed income securities and banks invest in them to fulfill their statutory obligation as financial institutions. The rules states that some part of their assets should be kept in near cash instruments and treasury bills is one of such. Also, the yields on treasury bills are high and they are risk-free.

 

“Today, because of the high yield on Nigerian treasury bills, lots of foreign investors are taking advantage of the market,” Wusu explained.

 

He however pointed out that, this had continued to inhibit flow of credit to the real sector.

But the Executive Director, Agusto & Co. Limited, Yinka Adelekan, argued that treasury bills yields would drop this year.

“As the yields on government bonds and other fixed income instruments starts to drop, I believe banks’ revenue would reduce compared to 2012,” she added.

 

Source: ThisDay Live