The daily couriering analysis predicts that the government will face higher borrowing costs as its debt stock grows.
According to Comercio Partners analysts, the CBN may be pushed to issue additional high-yield bonds to entice investors, resulting in higher borrowing costs for the government.
This follows an earlier revelation that Nigeria’s debt had risen to N49.8 trillion, prompting the DMO to advise Tinubu against borrowing.
Meanwhile, the World Bank has advised Nigeria to reduce its borrowing from the Central Bank of Nigeria in order to reduce the economy’s exposure to inflation.
The rising money supply defies interest rates. Despite the Central Bank of Nigeria’s (CBN) efforts to combat inflation and tighten liquidity by hiking the benchmark interest rate, the research shows that the CBN’s efforts have been futile.
According to the study, Nigeria’s money supply increased significantly, reaching a record N64.3 trillion in June 2023. It stated that the spike, which totaled N8.8 trillion in just one month, has raised worries about the effectiveness of the Monetary Policy Committee’s (MPC) interest rate hikes in containing inflation.
Notably, the CBN’s decision to raise the benchmark interest rate to 18.75% was motivated by rising inflation rates and was expected to reach 22.79% by June 2023, the highest level since September 2005. Despite multiple interest rate hikes over the last 14 months, inflation has remained high, raising questions about the efficiency of such monetary policy initiatives. According to the study, the increase in interest rates was intended to reduce the negative real rate of return and entice overseas investors’ investments, but it appears to have failed to address inflationary pressures and the increasing money supply.
According to the report, the growing money supply causes issues for the bond market. They did remark, however, that with a bigger money supply, investors may grow concerned about the potential erosion of their purchasing power, leading to increased demand for assets with lower negative yields.