As the country’s financial markets continue to react to the monetary policy implementations, the Central Bank of Nigeria (CBN) in the first two months of 2022 auctioned N400 billion worth of Open Market Operation (OMO).
Market data shows that the OMO auctions in the first two months of 2022 represent a decline of 67 per cent when compared to N1.16 trillion reported by the CBN in first two months of 2021.
It is, however, worthy of note that OMO is designed to be a short-term market instrument that the CBN uses to control the supply of money in the economy.
Whenever the apex bank believes the inflation rate is high due to increased money supply, it sells OMO at the secondary market to mop-up excess liquidity in the system.
Inflation rate in Nigeria has been on a steady decline since March 2121 when it was at 18.17 per cent to 15.7per cent as at January 2022, according to a report by National Bureau of Statistics (NBS).
The data obtained from the CBN revealed that a total of eight OMO sales were carried out between January and February 2022 and since 2021, the apex bank maintained OMO auction every Friday in a bid to control the supply of money.
The breakdown revealed that the CBN in January 2022, auctioned N130billion OMO, followed by February that recorded N270billion OMO auction.
The highest OMO auction by CBN was on February 25, 2022 when the CBN offered and allotted N100.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors (96DTM – 7.0per cent, 180DTM – 8.5per cent and 362DTM – 10.1per cent), as with prior auctions.
However, the CBN auction at the primary market, between January and February 2022 is N1.25trillion as against N936.5billion primary market sales in prior period of 2021.
Before now, the CBN had restricted Nigerian corporates, and individuals access to the OMO market, also, banks were not allowed to buy Treasury bills (T-bills) on behalf of borrowing customers.
OMO bills had attracted a juicy interest rate of about 15per cent per annum making them one of the most sought-after securities in Nigeria and indeed emerging markets explaining why foreign investors hold nearly half the size.
The CBN under Godwin Emefiele is understood to have one major mandate; keep the exchange rate stable at all costs and further devaluation of Naira.
This is the cornerstone of his monetary policy and underlines every action the apex bank has taken since the President Muhammadu Buhari administration came into power in 2015.
