Nigeria’s central bank introduces 90-day special bills to tackle surging liquidity
By Oludare Mayowa
In its bid to tackle the impact of excess liquidity in the banking system, the Central Bank of Nigeria (CBN) on Wednesday introduced a new monetary tool to manage system liquidity.
In a circular signed by its Director of Banking Supervision, Bello Hassan, the bank said the new fixed income assets was part of its efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.
The new special bills, according to the CBN will have a tenor of 90-day with zero coupon.
It said the applicable yield at issuance will be determined by the CBN and the instrument will be tradable among banks, retail and institutional investors.
The regulatory bank, however, said “the instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window.”
It said the instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.
“The CBN will continue to ensure optimal regulation of systemic liquidity and promote efficient
financial markets in support of economic recovery and sustained growth,” the regulator stated in the circular.
The central bank currently deploys Treasury Bills and Open Market Operations (OMO) instruments to regulate system liquidity.
The bank also often debit commercial banks for Cash Reserves Ratio (CRR) as part of liquidity management instruments to reduce the impact of excess cash in the banking system and curb inflation.
The introduction of the new special bill have been informed by the ineffective nature of the existing instruments to help the regulator moderate the impact of liquidity in the system.
The regulator had last year barred retail and institutional investors from participating in the OMO auction in its bid to force banks to create credit and help boost productivity in the economy.
Yields on fixed incomes have significantly dropped in the last one year, with average yields across short-term, medium-term, and long-term maturities trading at 0.06 percent, 0.09 percent, and 0.13 percent, respectively.