Cardoso Lures Foreign Investors with Historic OMO Yields
Record Yield on 364-Day OMO Bills
The Central Bank of Nigeria (CBN) set a new record on Thursday by offering 364-day Open Market Operation (OMO) bills with a yield of 32%, the highest on the one-year OMO bill since the bank started selling the instrument. This move is part of CBN’s broader strategy to attract foreign investors by providing inflation-matching returns, as Nigeria’s inflation rate stood at 32% in August.
Attracting Foreign Portfolio Investments
The 32% yield is designed to attract foreign portfolio investors, whose interest in Nigeria’s financial instruments had waned due to the rising inflation and the instability of the naira. By offering a return that closely matches inflation, the CBN hopes to halt the naira’s slide and draw in foreign capital to support the currency.
The 32% return on the one-year OMO bill marks the first time in over nine years that any government instrument has closely tracked inflation, signaling a potential return of foreign investments.
Naira Rebounds to N1576/$
On the same day, the naira rebounded, gaining 5% to close at N1576/$, according to data from FMDQ Securities Exchange. The local currency had been on a three-day losing streak before Thursday’s recovery, following the CBN’s surprise 50 basis points hike in the Monetary Policy Rate (MPR) earlier in the week.
CBN’s Dollar Intervention
To support the naira, the CBN sold $60 million to banks on Thursday. Traders reported that the bank sold $1-2 million to each commercial bank at rates between N1570 and N1580 per dollar. The $60 million sold accounted for 18% of the total turnover of $334.05 million recorded in the market, which surged 232% from the previous day’s volume.
Despite the dollar sales, the intraday high remained at N1699/$, similar to the level reached on Wednesday. Analysts say the CBN may need to continue selling dollars over the coming days to sustain the naira’s recent recovery.
Treasury Bills and OMO Yield Trends
The record yield on the OMO bills followed a similar trend in the Treasury bill market, where the one-year Treasury bill stop rate rose to 20%, up from 18.5% at the previous auction. This increase in yields reflects CBN’s strategy of aligning market rates with inflation and the recently raised MPR, now at 27.25%.
The rise in the one-year Treasury bill yield brought the effective yield to 24.9%, still below inflation but the highest on record. Foreign and local investors showed strong interest in the auction, with bids totaling N250.4 billion, 1.4 times the N173.8 billion on offer.
Foreign Investors Eyeing Nigeria
Foreign portfolio investors are taking note of the high returns in the Nigerian market. Analysts expect that the record OMO yields will renew interest in Nigerian assets, similar to what happened in March when a significant increase in OMO yields led to a surge of foreign investment and a brief strengthening of the naira to N1200/$.
The CBN also announced that it would sell $20,000 to each Bureau de Change (BDC) operator at a rate of N1,590 per dollar. This initiative aims to stabilize the parallel market, where the naira had weakened. The naira gained N5 in the black market, closing at N1,695 compared to N1,700 on Wednesday.
Pattern of Dollar Sales
Analysts have observed that the CBN’s dollar interventions lack consistency, contributing to volatility in the naira’s value. Although the CBN sold $1.75 billion in the first seven months of 2024, there has been no clear pattern, leaving market participants uncertain about future interventions.
Economist Bismarck Rewane has criticized the CBN for not clearly stating when it will intervene in the market. He argued that the lack of transparency is fueling speculation, which in turn drives the naira’s depreciation. Rewane suggested that with a more transparent strategy, the naira could stabilize around N1450-1500/$.
Challenges for Local Businesses
The CBN’s monetary tightening, including interest rate hikes and an increase in the Cash Reserve Requirement (CRR) to 50%, is putting pressure on local businesses. Industries such as manufacturing, cement, food, pharmaceuticals, and real estate are feeling the strain, as higher borrowing costs limit their access to capital. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, criticized the policy as a misstep, saying that it forces the private sector to absorb excess liquidity in the system.
Social Media Reactions:
- @InvestorNgozi: “32% OMO yield? Foreign investors will be all over this! Good move by the CBN to stabilize the naira.”
- @NaijaTrader: “Naira rebounds to N1576/$ after CBN sells $60m to banks. High OMO yields may help, but we need consistent interventions!”
- @BolaEconomist: “The 32% OMO yield is attractive for foreign investors, but what about the impact on local businesses? These rates are unsustainable for many sectors.”
- @FXWatcher: “CBN’s patternless dollar sales are keeping everyone on edge. Clear communication is key to stabilizing the market.”
- @RealEconomics: “The record OMO yield is a necessary evil. We need foreign capital to support the naira, but the CBN must balance this with the needs of local businesses.”
- @MoneyMatters: “CBN pushing for more foreign inflows with this OMO rate. Let’s hope it attracts sustainable investments!”
Join Our Social Media Channels:
WhatsApp: NaijaEyes
Facebook: NaijaEyes
Twitter: NaijaEyes
Instagram: NaijaEyes
TikTok: NaijaEyes
