CBN auction anchors front-end credibility

Nigeria’s reissuance of ₦650 billion in Treasury bills at the 22 October 2025 primary auction underscores a balancing act between disinflation management, liquidity control, and fiscal rollover. The macro environment has stabilised after the inflation and currency shocks of 2024 but remains structurally tight. Headline CPI slowed to 18.02% year-on-year in September 2025, from 20.12% in August and a peak above 33% in March 2024.

The Central Bank of Nigeria reduced its policy rate by 50 basis points to 27.00% on 23 September — its first cut since 2020 — retaining a positive real-rate posture as disinflation gains traction. Gross external reserves stood at US $42.1 billion in late September, their highest since 2019, while the naira has stabilised within a ₦1,520–₦1,620 band per US dollar (NGN=X) in mid-October. Real GDP expanded 3.9% year-on-year in H1 2025, and full-year growth is projected near 3.6%, supported by oil recovery and services resilience.

The central bank is rolling over maturities across standard tenors — ₦100 billion in 91-day, ₦100 billion in 182-day, and ₦450 billion in 364-day bills — via Dutch auction. The previous auction on 8 October cleared at 15.00%, 15.25%, and 15.77% respectively, implying effective yields in the 17–18% range once discounts are annualised. These rates have fallen roughly 200 basis points from early-year highs, reflecting improved system liquidity, stronger reserve cover, and a credible monetary stance. The operation is not net issuance but a refinancing of maturing debt, signalling policy intent to sustain tight money while easing nominal funding costs.

The policy-transmission sequence is clear. Short-term yields anchor government borrowing costs and define the liquidity premium across the curve. Elevated front-end rates absorb excess cash from banks, reinforcing disinflation and compressing speculative FX demand. Yet, persistent double-digit yields crowd out private credit; banking-sector claims on the private economy remain ~19% of GDP against 45–50% in peer emerging markets, keeping Nigeria’s credit channel shallow. The yield differential versus inflation — now near 250 basis points on the 91-day paper — maintains the monetary-policy grip without reigniting capital-flow volatility.

Market participants will read the 22 October auction as a forward indicator of policy calibration. A 25–50 basis-point compression at the 91- and 182-day segments would confirm the CBN’s shift to data-driven easing. A 364-day stop near 15.5–15.8% would indicate confidence that inflation will stay below 20% into Q1 2026. Demand metrics remain firm: the 8 October sale attracted ₦1.06 trillion in bids against ₦570 billion offered, a bid-cover ratio of 1.86×. Sustained coverage above 2.0× would validate the rollover strategy and cap near-term sovereign-risk premiums. Equity-market effects are marginal but directional — easing short-term rates improve risk appetite on the NGX ASI (.NGX), though high real yields continue to anchor local institutional portfolios in fixed income.

Externally, Nigeria’s positioning benefits from benign global conditions. Oil (CL=F) remains range-bound near US $84 per barrel, shielding the balance of payments from renewed price shocks. Frontier debt spreads have tightened across Africa, compressing 100–150 basis points since mid-2024, narrowing Nigeria’s relative cost of funding. By contrast, Egypt’s comparable one-year T-bill yields trade around 22%, highlighting Nigeria’s improving inflation differential and reserve credibility. The FX regime’s relative stability has reduced arbitrage, helping align the official and parallel markets and improving price transparency for offshore investors tracking carry returns.

The outlook over the next two quarters is measurable. If average stop-rates decline toward 14.5% (91-day) and 15.0% (182-day) while the 364-day stays near 15.5%, headline CPI holds in a 16–18% range, reserves remain above US $40 billion, and NGN=X trades within ₦1,450–₦1,650 per US dollar, Nigeria will have confirmed a pivot from inflation-defence to rate-signal credibility. Failure to maintain those thresholds — through weaker coverage, rising stop-rates above 17%, or renewed FX pressure — would imply a re-pricing of sovereign risk and potential reversal of easing expectations. The coming auction cycle will therefore act as the clearest test of how Nigeria manages the interplay between monetary orthodoxy and liquidity discipline under a shifting global rate environment.