VicThory:
Is it for good or bad?


I don't understand

The benchmark cost of borrowing money has reduced...

So answer yourself is this good..

Leadafrica:
After so many people were enticed and they invested, now you bring the rates down, issorait

Higher demand on treasury bills , causes interest rate to fall.

Bad news. They borrow and loot from outside, they don't want Nigerians to enjoy good interests when they lend to Nigeria.

izzou:


Are you serious?

What's the effect of this? Finance is not my forte

In layman’s English treasury bills are a system where you lend money to the government. Can be for 3, 6 9 or 12 months

Say I lend fg 10 million for 12 months at 10%.Fg will give me 1 million at the point of my lending them the money. At the end of 12 months, they give me my money back. I can repeat cycle, or decide to do something else with the money.

Treasury bills are a very safe form of investment, so everyone is jumping on them.

There are typically auctions where people bid for treasury bills every two weeks

As demand is getting higher, it seems cbn is dropping the rates, which means rather than 1 million for 10 million, I would get 898000

That’s it in very simple terms

You are actually better off asking poco.

Pistotita:

Double digits for.the economy is a bad signal. But can be rewarding for traders. In fact, it is good for the buyers....but terrible for Nigeria. US treasury which is regarded as one of the best in the world is not even up to 7%. And investors pump in billions of dollars there cos it is the most assured paper investment in the world. You.cannot lose.

Eh now, because inflation there is low. You give money to government for a year, collect it back with the so called yield and it cannot purchase what it could a year ago.

If government was really investing in the articles to drive down the cost of living and cost of doing business then the long term prospects will be better but government remains the most wasteful and inefficient consumer of resources so poverty persists all round.

rastamouse:
For those asking whether its good or bad, it depends where you are. If you bought some of the bills, its a bad news for you.

When you buy t- bills at a specific interest rate , aren't they supposed to give you your money at that same rate irregardless of whether later on the interest rate changes.

statusquoante:
Damn!

Maybe it's time to consider fixed deposit

Fixed deposit will surely give you lower than Treasury Bills

rastamouse:

However if you are a business, this is a good news. When the treasury bills rates go down, banks turn to borrowers. If the rates are high, the banks prefer to invest in those bills.

Hope I explained something

Will this cause the interest rate for fixed deposit accounts to increase ?

Okokobiokor

KingAzari:
In layman's terms please? All these number are making me dizzy.

This means that the interest you will get at the maturity of the Tbills will be below inflation rate so right from on set you are loosing money.

Bad news for investors. Good news for Nigeria. Now Nigerians can pump their funds into the real sector economy.

Pistotita:

Double digits for.the economy is a bad signal. But can be rewarding for traders. In fact, it is good for the buyers....but terrible for Nigeria. US treasury which is regarded as one of the best in the world is not even up to 7%. And investors pump in billions of dollars there cos it is the most assured paper investment in the world. You.cannot lose.

U.s treasury bonds are merely 1 percent

The news (being good or bad ) depends on the financial dynamics of the economy.
MPR rate( moneytary policy rate ) is usually the guide or benchmark that determines general lending rate.
If I can recall "rightly" MPR has been on 13.5% since around Sept. meaning savings account rate is 4.05%.
I see an imbalance here cos T-BILL rate has gone as low as 7-10% while MPR rate is still at 13.5% meaning that despite this reduction banks are not going to reduce lending rate to customers which hovers around 32-43%.
Direct investment will be less attractive meaning FDI will reduce . local businesses will not enjoy the rate "crash". meaning govt will eventually have less money gained from FDI and general business transaction.. A lot of financial houses including insurance, pension houses ,brokers will reduce their profit outlook as they will make less monies.
Slightly more money will be in circulation and businesses will still be hard -pressed because lending rate is still high while inflation will pick up.
however because December period is usually an all time season-high for consumer spending effect of these above will only start to manifest in mid-January and early February
things might be very tight in the business sector but equities in businesses will increases since gains from investment is low.

The govt can ease the tight business environment expected to follow by opening borders or allowing a simpler and quicker process for clearing goods at the port to allow for increased business traffic in the sea port to placate whatever negative effect land border closure might have on business and make cross-border transaction shift to import/export by sea.
Those with personal assets (non-borrowing) also called equities for businesses will be the business biggest gainers.

In all, this decision or scenario seems temporary unless CBN intends to reduce MPR rate early next year then we will get the true picture of the direction of CBN/Govt

my 2kobo lay man analysis (for those that need some explanation)

cc: chloride6

VicThory

KingAzari

izzou

Leadafrica

VicThory:
Is it for good or bad?


I don't understand

bad because the interest rate has dropped

Very good means of investing your excess money and you are sure of interest through your bank. A better way of investing if you don't want the stress of street eg MMM and others. Predominant a way of making a rich man rich while the poor remain there because there is no excess money to invest. Also a way govt get money from citizen for immediate expense rather than borrowing. That is my own understanding because in 2001 I invested 500k, for every 90 days roll over, I got btw 25 to 30k. Which I use the proceed then for my flat improve my flat.

/
At these rates, it is still one of the best in the world.


/

urahara:


Higher demand on treasury bills , causes interest rate to fall.

Exactly.

Acidosis:


Bad news for investors. Good news for Nigeria. Now Nigerians can pump their funds into the real sector economy.

People will only invest in what is profitable. That is low cost, high returns, moderate risk. Can you say that about the real sector right now.?

There are serious reasons why folks are in government securities in the first place. If government will not shoot itself in its own feet, that is the safest place to be.

Lol

Laxy mans investment

Let's trade American stocks jare

Archmage:
Fixed deposit will surely give you lower than Treasury Bills

Can it be lower than 6% ?

Unavailability of short tenors like 40 days, 60 days, 70 days etc in the secondary market coupled with the single digit interest rate is currently making treasury bill unattractive.

So painful! Just like MMM in 2016, TB has 'crashed' in 2019...

Lol... This is not strange knowing too well that idiot emiefele has bee looking for ways to offset the 500 billion naira they stolen that shaked the hearts of investors !

InvertedHammer:
/
At these rates, it is still one of the best in the world.


/

Really

Tenor is actually the issue. There are no short tenors in the secondary market anymore...

ursullalinda:
Pls someone should break down in a lay man's language

Demand and supply, from the look of things demand has exceed supply that has led to the price (rate) reduction

When they stopped individuals and non banking sector from subscribing to the OMO, I knew the TB rate was going to drop.
Government want people to invest in the real sector without providing an enabling environment for business to strive, plus multiple taxes eveywhere.
Anyways let's see what rate they will publish for the Savings Bond next month

Will interest rates also soon go down? Wanted to put some funds on TB but always oversubscribed. Was good while it lasted...

statusquoante:


Really

Tenor is actually the issue. There are no short tenors in the secondary market anymore...

/
Some investments are not for everyone.

/

urahara:


When you buy t- bills at a specific interest rate , aren't they supposed to give you your money at that same rate irregardless of whether later on the interest rate changes.

This new rates don't affect previous investments.

Let me explain to those asking whether it's good or bad. TB means lending money to government for 90 days, 180 days or 364 days. The interest rates differ. So the longer the loan (tenor), the higher the rate.
People have earned 18% on one year TB. With this new policy, they will earn between 7% and 10%. So it's bad for investors, but good for government that will pay cheaper.
The interest rate is paid upfront and the main money is paid on maturity.

Reference:


People will only invest in what is profitable. That is low cost, high returns, moderate risk. Can you say that about the real sector right now.?

There are serious reasons why folks are in government securities in the first place. If government will not shoot itself in its own feet, that is the safest place to be.

I'm an advocate of highly secured and risk-free investments like T-Bills but let's face the truth, Nigeria is never going to develop if everyone decides to do nothing but dump their monies in TBills. Banks like Zenith made most of its 2018 profit from TBills. They all don't want to do anything again but lend out money to a corrupt government. To give out loans even became a problem since the yields from a secure investment like TBills outweigh the benefits from loans, bad debts and crazy borrowers.

How is that going to help anybody?

Btw, let's not forget a basic economic principle that says supply will always be driven by demand. Over the past 5-7 years, the knowledge about TBills have grown so much, leading to a consistent oversubscription. Rates can't continue to rise with that trend.

Also note that the real sector economy is not limited to Real Estates. We have others like Agriculture, Education, Etc. We all don't have to do business but we all can invest in businesses via the Equity Market (Shares), crowdfunding, venture capital, etc.

TBills may help an individual but it wouldn't change a thing as far as the Nigerian economy is concerned.

Leadafrica:
After so many people were enticed and they invested, now you bring the rates down, issorait

Once you invest at a rate, it stays that way. It's to discourage new investors or let them know the song has changed.

InvertedHammer:

/
Some investments are not for everyone.

/

True.

But it seems 'everyone' are actually not the target of this policy... It's those who should be investing big time in businesses but have decided to be indolent via TB.

Maybe CBN should peg principal for TB so that only 'everyone' can partake...

Bad

VicThory:
Is it for good or bad?

I don't understand

MohAbdullah:
despite being an economist student I still don't understand all these analysis

I think someone should explain better for me

A brilliant "Business Administration or Banking & Finance Student" would decipher such analysis, Not to talk of an economist student. It's too early to start bashing You. I suppose u saw the Oversubscription part. If u understand the Law of Supply and Demand, You would easily decode the analysis. It's not a rocket science!!!