THE Central Bank of Nigeria (CBN) on Tuesday, rejected all subscriptions totalling about #4.9 trillion at its Open Market Operations (OMO) bills auction, despite offering #600 billion across two tenors.

The decision came against the backdrop of excess liquidity in the banking system, as the apex bank continues to fine-tune monetary conditions to curb inflationary pressures and stabilise money market rates.

The auction was initially aimed at partially refinancing maturing OMO bills estimated at about N2.14 trillion.

Market analysts had expected strong demand, given that the money market was in a net long position of about A4 trillion, making banks and other eligible investors flush with investible funds. As anticipated, total subscriptions surged to #4.9 trillion, far exceeding the amount on offer.

However, despite the heavy demand, the CBN made no allotment, effectively rejecting all bids.

Analysts said the rejection was a deliberate monetary policy signal by the apex bank, driven by several considerations:

First, the CBN is seeking to avoid further injecting liquidity into an already liquid financial system. Accepting bids and refinancing maturing bills could have worsened excess liquidity conditions, undermining efforts to tame inflation and maintain monetary discipline.

Second, the bank appears unwilling to validate aggressive pricing by investors.

The high level of demand was largely driven by expectations of lower yields, but the CBN’s rejection suggests it is determined to prevent a rapid decline in OMO yields that could weaken monetary tightening efforts.

Also, the move reinforces the CBN’s preference for managing liquidity through alternative instruments, including the Standing Deposit Facility (SDF) and discretionary OMO operations, rather than automatically rolling over maturing obligations.

The decision supports the broader objective of aligning market rates with its tight monetary stance, ensuring that interest rates remain sufficiently attractive to moderate inflation and stabilise the exchange rate.

In the Treasury Bills market, secondary trading showed mixed performance.

Yields on the one-month, six-month and twelve-month bills declined by 9 basis points, 9 basis points and 4 basis points respectively, while the three-month tenor edged up by 2 basis points.

Overall, the average yield on Nigerian Treasury Bills fell marginally by 1 basis point to 18.46 per cent, reflecting sustained investor confidence and continued activity in the secondary market.

Market participants view the CBN’s rejection of the #4.9 trillion OMO subscriptions as a strong signal of its commitment to liquidity control, yield discipline, and the broader fight against inflation, even in the face of overwhelming investor demand.

 

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