By Ademola Alawiye

Following the increase in the inflation rate, the Central Bank of Nigeria has announced that it plans to auction N76.73bn in 91,182 and 364-day treasury bills next Wednesday to control inflation.

According to information from the apex bank, CBN will auction N30bn in 91-day bills and N46.73bn in 182-day bills, using the Dutch Auction System.

Inflation rate in Nigeria rose to 12.8 per cent year-on-year in March 2011, higher than the 11.1 per cent recorded the previous month, according to the National Bureau of Statistics.

Most analysts attributed the development to heavy political spending as a result of the ongoing elections.

The Chief Executive Officer, Money Market Association of Nigeria, Mr. Wale Abe, said that the move would reduce money supply in circulation.

He said, “By selling N77bn treasuries bills, the CBN will reduce the quantum of money in circulation which is the right move at this time given the high level of spending in the economy.”

The Deputy Manager, Civic Investment Limited, Mr. Thomas Adenuga, said, “The CBN should continue with its contractionary policy, even though the pressure is from the fiscal authorities.”

Meanwhile, inter-bank lending rates climbed to 10.25 per cent on average this week from 9.66 per cent last week on the back of large cash outflows to foreign exchange and bond purchases.

The Secured Open Buy Back stood at 9.50 per cent, 200 basis points above the CBN’s 7.5 per cent benchmark rate and 4.5 percentage points higher than the Standing Deposit Facility rate.

However, overnight placement climbed to 10.50 per cent from 9.75 per cent, while call money rose to 10.75 per cent from 9.75 per cent last week.

Dealers said outflows to foreign exchange and other transactions in the week drained liquidity in the system and pushed up the cost of borrowing among banks.

Reuters quoted a dealer as saying, “There was inflow from personnel costs to government agencies in the week, which helped reduced the impact of outflows on the cost of fund in the market. We see the market becoming short next week and the cost of borrowing inching up a bit until the next round of budgetary disbursements.

The market opened with a balance of about N86bn ($555m) on Thursday but the market is expected to be short next week because of the impact of major outflows to foreign exchange and other transactions.

Source: Punch