CBN Cuts Interest Rates on Nigerian Treasury Bills

 CBN Cuts Interest Rates on Nigerian Treasury Bills

The Central Bank of Nigeria (CBN) has reduced interest rates on Nigerian Treasury Bills at recent primary market auctions, marking a notable shift in monetary policy as the apex bank seeks to manage its debt servicing costs and respond to strong investor demand.

*Key Details of the Rate Cut*

At the latest auction, stop rates for the 91-day Treasury bill fell by 50 basis points to 18.00%, the 182-day bill dropped by 100 basis points to 18.50%, and the 364-day bill declined by 3 basis points to 19.60%.

In a previous auction, the 364-day bill rate was cut by 31 basis points to 19.63%, while rates for the 91-day and 182-day bills held steady at 18.00% and 18.50% respectively.

The CBN offered N400 billion worth of bills but received total subscriptions of N1.54 trillion, highlighting robust investor appetite, especially for the longer 364-day tenor.

*Market Dynamics Behind the Rate Cut*

The CBN’s decision to lower rates is influenced by a surge in demand for Treasury bills, particularly the 364-day paper, which accounted for the vast majority of subscriptions and allotments at recent auctions.

High liquidity in the financial system and strong investor interest have allowed the CBN to reduce yields while still attracting significant investment.

The move also aligns with the CBN’s strategy to reduce its payment burden on government securities, especially as the benchmark interest rate has risen above headline inflation.

*Implications for Investors and the Economy*

Lower Treasury bill rates mean reduced returns for investors, but the continued high demand suggests that T-bills remain an attractive, low-risk investment option in the current economic climate.

The rate cuts may help the government manage its borrowing costs but could also influence the attractiveness of naira-denominated assets for foreign and domestic investors.

In the secondary market, yields have also declined slightly across short, mid, and long tenors, reflecting the shift in primary market rates.

The CBN’s rate cuts on Treasury bills signal a period of strong demand and high liquidity in Nigeria’s money market. Investors should monitor future auctions for further changes, as rates are subject to shifts in liquidity, inflation, and central bank policy. The continued oversubscription of T-bills, especially the 364-day tenor, underlines their enduring appeal despite the lower yields.