CBN sells 158.7bn naira in Wednesday's OMO auction
Traders say Wednesday's Primary Market Auction (PMA) closed relatively strong, as players say they expect sentiments today to be weak in anticipation of an Open Market Operations (OMO) auction today.
Thu, 12 Sep 2019 14:15:21 GMT
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AI Generated Summary
- The CBN conducted its second OMO auction of the week, offering to sell 300 billion naira to address liquidity challenges in the market amidst significant maturing funds.
- The alignment between PMA and OMO rates suggests a growing trend towards higher rates, signaling the need for a more attractive return on investments to keep investors engaged.
- The CBN may need to consider a 100 basis point increase from the current rate of 13.50% to maintain investor interest and navigate the delicate balance between liquidity management and exchange rate stability.
The Central Bank of Nigeria (CBN) conducted its second Open Market Operations (OMO) auction this week, offering to sell about 300 billion naira across all matrices. This move comes in the wake of increasing liquidity challenges in the market, with close to 9 trillion naira maturing between now and December. Taiye Owonubi, Senior Portfolio Manager at AXA Mansard, shed light on the implications of the OMO auction and the challenges facing the CBN in a recent interview on CNBC Africa.
Owonubi highlighted that the CBN has been proactive in increasing rates to mop up funds, with stop rates currently at 13.50%. However, with the substantial amount of funds set to mature in the coming months, maintaining this rate might prove difficult. The CBN may need to intensify its mop-up operations, which could lead to further rate hikes. Investors are closely monitoring the situation, with expectations of a more attractive return on investments.
The recent Primary Market Auction (PMA) also indicated a shift towards higher rates, with stop rates closing at around 13.2%, 40 basis points higher than the previous auction. This adjustment reflects the growing alignment between PMA and OMO rates. As liquidity continues to impact currency stability, the CBN remains focused on maintaining exchange rate stability. Offshore investors holding Nigerian bills have a significant influence on the market, and offering them competitive returns is crucial to retaining their investments.
Looking ahead, Owonubi suggested that a 100 basis point increase from the current rate of 13.50% could attract more interest from investors in the medium term. However, with looming maturities and the need to balance liquidity and exchange rate stability, the CBN faces a delicate balancing act. Despite the challenges, Owonubi expressed confidence in the CBN's ability to navigate the situation and keep the market stable.
In conclusion, the liquidity dynamics in the market pose a significant challenge for the Central Bank of Nigeria, necessitating strategic decisions to manage liquidity, rates, and exchange rate stability. As market expectations evolve, investors and stakeholders will closely monitor the CBN's actions in the coming months to gauge the impact on the financial landscape.
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