In what observers see as desperate moves to reverse dwindling fortunes of the economy, particularly through monetary policy instruments, the Central Bank of Nigeria (CBN) on Thursday sold 364-day Open Market Operations (OMO) bills at a yield of 32 percent, the highest, ever, the commencement of the operations.
Some analysts say the 32 percent yield on the one year OMO bill shows CBN is all out for quick accretion to the foreign reserves as well as reversing the misfortunes of the local currency that has lost over 70 percent of its values in the last one year.
Specifically, with the possibility of foreign investors getting returns that just about the match of the 32 percent inflation rate in August, foreign direct investments and portfolio investors into the country will be enhanced, even if temporarily.
Besides the mouth watering yields on OMO bills, CBN announced on Wednesday that it will sell $20,000 to each Bureau de Change (BDC) at a rate of N1,590 per dollar, in its determination to shore up foreign exchange liquidity in the market so as to enhance value of the naira for better exchange rate with other foreign currencies.
The BDCs were mandated to sell at no more than 1 percent above the purchase rate. The dollar sale to BDCs is aimed at stabilising the exchange rate in the parallel market where the naira has also weakened considerably.
The local currency however has been hovering between N1650 and N1700 at the black market.
The naira is not fairing better at the official market as it closed at N1576/$, even with 5 percent gain as at Thursday acccording to data by FMDQ Securities Exchange, which tracks the data.
The embattled naira had been on a three-day losing streak going into Thursday, defying the CBN’s surprise 50 basis points hike in benchmark interest rate/MPR on Tuesday.
The latest rate hike, the fifth in quick succession, took the Monetary Policy Rate (MPR) to 27.25 percent.
The naira fell to a low of N1658/$ on Wednesday even after the CBN signalled that market rates were going to rise in tandem with the MPR at a Treasury bill auction on the same day
Analysts have continued to blame the inconsistency in the antidotes to poor outing of the local currency and foreign reserves by CBN.
For instance, CBN has intervened in the foreign exchange market multiple times this year but without pattern to which traders and manufacturers could plan.
“The lack of pattern to the apex bank’s dollar sales may be undermining its efforts to stabilise the naira,” says an analyst.
The CBN sold $1.75 billion in the first seven months of 2024, according to data obtained from FMDQ’s website, but there was no clear pattern to the sales leaving the market guessing when the next intervention will come.
That uncertainty, according to some analysts, has contributed to the further depreciation of the naira which has shed over 70 percent since the CBN allowed the currency to float in June 2023.
Bismarck Rewane, an economist and CEO of Financial Derivatives Company Ltd, said that the CBN is leaving room for speculation by not clearly stating when it plans to intervene in the market and by failing to publish data on net external reserves.
“By not stating the net position of reserves and not coming out to say this is when we will intervene in the market, you are giving room to speculation,” Rewane said.
“My view is that we should come up with a programme and be very clear about it. I believe if we take away the speculative premium, the naira could be trading at N1450-1500/$,” Rewane said.
Infact, since the expose by American bank, JP Morgan, on the integrity of the published net external reserves, investors have taken data on Nigeria’s external reserves with a pinch of salt.
They question why the CBN is reporting a higher level of reserves at the same time the naira is tumbling.
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“With the current reserve at over $39 billion, according to CBN, one expects the bank to have a better grip on the currency. So with persistent hike in MPR, sale of dollars to BDCs, yet no respite. Some of us are skeptical of what’s really happening without commensurate results to show” an analyst said.
Similarly, CBN’s efforts to combat inflation and shore up the ailing naira by increasing interest rates and raising the Cash Reserve Requirement (CRR) of banks by 500 basis points to 50 percent, according to the analysts, have put the manufacturers on the brinks.
“The manufacturing sector, along with industries such as cement, food and beverages, chemicals, pharmaceuticals, and real estate, continues to face major challenges. This rate hike will only worsen their situation,” Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise said.
According to Yusuf, tightening financial conditions amid the country’s economic and structural challenges is a policy misstep.
