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Investors Anticipate Huge Rise in Treasury Bills Rates Before Year End

By Dipo Olowookere

There are high expectations that treasury bills rates would increase before the end of this year till early next year, when the country heads to the polls to elect their new leaders.

The expected hike in rates may likely be one the moves by the Central Bank of Nigeria (CBN) to reduce the rate at which investors are pulling their funds out of the country’s economy to where they can get better yields on their investment.

Since the United States, through the Federal Reserve, hiked its benchmark short-term interest rate, investors have been exiting emerging markets, including Nigeria.

This has in one way or another affected the Nigerian economy, especially the stock and the fixed income markets.

As part of efforts to make the Nigerian market still attractive to foreign portfolio investors, the CBN is likely to increase the treasury bills rates.

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This was slightly evident in the primary auction conducted by the central bank on Wednesday, where the rates cleared higher than what were obtained two weeks ago, when the CBN sold fresh T-bills to investors.

According to an analysis done by Business Post, at the August 1, 2018 PMA, the 91-day bills cleared at 10 percent, the 182-day bills at 10.40 percent and the 364-day bills at 11.30 percent.

At the next exercise conducted on August 15, 2018, while both the 91-day and 182-day bills remained unchanged, the 364-day bills dropped to 11.22 percent.

However, at the PMA held yesterday, August 29, 2018, the rates for the three papers increased sharply.

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Business Post observed that the 91-day bills cleared at 11 percent, the 182-day bills at 12.30 percent and the 364-day bills at 13.05 percent.

Over three weeks ago, Deputy Governor of the CBN, Mr Joseph Nnanna, hinted that the apex bank may tighten and increase its main interest rate if the nation’s inflation rate fails to decline.

According to the National Bureau Statistics (NBS), headline inflation eased to 11.14 percent year-on-year in the month of July 2018 from 11.14 percent from 11.23 percent recorded in June 2018.

Mr Nnanna had explained to Bloomberg that, “These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation.

“There’s a scope to raise rates before the elections in February.

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“The central bank is still in the mood for tightening,” he said. “How fast are we going to tighten is what members [of the Monetary Policy Committee] haven’t agreed upon.”

Treasury bills rates started to decline from 2017 when the federal government said it was reducing the rate it was borrowing at the local market.

At a point last year, treasury bills rates were over 18 percent and it became very attractive to investors, who flooded the market.

But since the government reduced its local borrowing, the rates have dropped, making it less attractive to both local and foreign investors.

If the rates skyrocket again as anticipated as the year ends, more investors, especially foreign, would be forced to enter the market again, reducing capital flight.

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Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

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