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Friday, October 25, 2019 / 1:35 PM /by FDC Ltd / Header Image Credit: Economic confidential
A rash of new directives about barriers to participating in the OMO
bills issues by the CBN. First it was banks who were not allowed to buy T/bills
on behalf of borrowing customers and subsequently all Nigerian corporates and
individuals have now been denied access to the market.
This was a form of moral coercion on the banks to increase their loans
to the private sector. It is believed that an increase in bank credit to the
private sector will lead to increased growth and employment. Total credit
exposure to the private sector is now N25.47trn. The banks are wary to rapidly
grow risk assets at a time of high default risk.
The implications of these guidelines is that the funding of CBN
secondary market bills will be the sole prerogative of the foreign investors
(hedge funds) i.e. 'hot money'. If the international investors who are volatile
and jittery flee the market, the FGN debt will be funded mainly by the CBN
(ways and means advances).
This appears like a risky bet in terms of inflation which is already
ticking upwards. Secondly, there are minimum requirements of T/Bill holdings by
the pension fund portfolios as prescribed by PenCom.
Therefore, it is likely that a solution to the LDR problem could lead to
a much wider systemic challenge with serious unintended consequences. There is
the fear that increased naira liquidity could put pressure on the currency in
the forex markets.
Implications
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