Inflation rebasing drives N2.49trn T-bills oversubscription, expectations of rate cut

Nigeria’s one-year Treasury bill auction was oversubscribed by N2.49 trillion as investors rushed to lock in current yields ahead of a potential rate cut following the rebasing of inflation. The yield on the one-year bill dropped to 27.87% from 29.21% at the last auction. Analysts at Meristem had projected this decline, citing expectations that investors would price in lower rates following adjustments to the Consumer Price Index (CPI). The Monetary Policy Committee (MPC) meeting, initially scheduled for January, was postponed to February 17-18 to accommodate the rebased inflation figures.

The rebasing process, which sets 2024 as the base year for inflation calculations, is expected to alter economic indicators, with some analysts suggesting it could exaggerate GDP growth while downplaying inflation. Liquidity constraints, including a system deficit of N373.66 billion, initially posed challenges to auction participation. However, inflows from FAAC allocations and bond coupon payments bolstered demand, leading to an oversubscription more than six times the N400 billion offered. Despite the overwhelming interest, the CBN sold only N712.47 billion worth of bills, about 50% more than the N1.47 trillion from the previous auction.

Analysts at CardinalStone predict that the CBN is nearing a rate cut, with a possible downward adjustment of 100-200 basis points in the second half of 2025. With N31.26 trillion expected in liquidity from OMO, NTB, and bond maturities, government borrowing is projected to reach N9.16 trillion. This could moderate yields later in the year, with the CBN likely maintaining low liquidity tolerance. Meanwhile, short-term treasury bills saw minimal interest, with yields on 182-day and 91-day bills holding steady at 20.39% and 18.86%, respectively, for the ninth consecutive auction.

Source: BUSINESS DAY