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By Chinwendu Obienyi
The Debt Management Office (DMO) has moved to reduce excess cash in the financial system after selling N1.14 trillion worth of Treasury bills at its latest primary market auction, even as investors submitted bids totalling N1.54 trillion.
At the auction, the DMO offered N1.15 trillion across three short-term instruments — 91-day, 182-day and 364-day Treasury bills. Demand was strong, with total bids about 30 per cent higher than what was on offer, showing that investors are still eager to park their money in government securities despite rising interest rates.
Interest rates rose across all tenors. The 91-day Treasury bill closed at 15.80 per cent, up from 15.50 per cent at the previous auction. The 182-day bill also increased to 16.50 per cent from 15.95 per cent. The biggest jump was seen in the one-year, 364-day bill, which climbed to 18.47 per cent from 17.51 per cent. Market analysts say the DMO deliberately sold slightly less than the amount offered, even with strong demand, as part of efforts to soak up excess liquidity in the banking system. By doing this and allowing interest rates to rise, the government is trying to reduce the amount of cash circulating in the economy.
According to fixed-income traders, there has been plenty of money in the system in recent weeks, largely due to the repayment of maturing government securities and regular government spending. This has kept short-term interest rates low. However, authorities are now tightening conditions to control inflation and manage money supply.
“The auction shows that the authorities are comfortable allowing rates to go up in order to absorb surplus cash. This is part of a broader effort to normalize the market,” traders said.
The Central Bank of Nigeria (CBN) has also been active in tightening liquidity. It has carried out aggressive cash reserve ratio (CRR) debits on banks and conducted open market operations to reduce the amount of money in circulation and slow inflation.
Nigeria’s inflation rate currently stands at 14.45 per cent, and many analysts believe monetary policy will remain tight for some time. The CBN has kept its benchmark interest rate at 27 per cent as it continues to battle rising prices and stabilize the naira following recent foreign exchange reforms.
Investors showed the strongest interest in the 364-day Treasury bill, suggesting that pension funds and asset managers prefer to lock in higher returns for longer periods amid uncertainty over inflation and future interest rate movements.
Market participants expect the outcome of the auction to push yields higher in the secondary market, where Treasury bill rates have already started rising. With one-year rates nearing 18.5 per cent, analysts say borrowing costs are likely to remain high in the near term as the government focuses on inflation control and managing liquidity rather than lowering interest rates.
