AUGUST 21, 2017 – To meet its core objectives of price stability, the Central Bank of Nigeria (CBN) in seven months has mop-up estimated N2.9 trillion excess liquidity using the Open Market Operations (OMO) auctions, investigation by LEADERSHIP has revealed.
With the CBN introduction of Investors and Exporters Foreign Exchange and Small and Medium Scale enterprises (SMEs) windows, the OMO sales operation has doubled since in April and reached record high of about N779.4 billion in July.
According to LEADERSHIP findings, the CBN auctioned N491.5 billion OMO in January but dropped to N407.5 billion in February. In March, the CBN mopped-up N380.2 billion using the OMO and N262 billion and N303 billion in April and May 2017 respectively.
Furthermore, the OMO sales closed at N315 billion, data from CBN website disclosed. OMO is a monetary policy instrument that the CBN used to control the supply of money and the interest rates are always attractive to lure commercial banks and high network investors keep their money with CBN rather than inject them in real sector of economy.
According to CBN, OMO sales have attracted rates between 17.5 per cent and 18.5per cent, a move to keep the foreign exchange stable. So, to deter pressure on the foreign exchange, the CBN sucks out naira from the economy by offering high interest rates believing that the more naira you have available to chase dollars, the lower the depreciation of the naira.
The CBN not only uses OMO but Treasury Bills and federal government bonds to stem inflationary pressure and curtail liquidity arising from maturing bills. However, a group of analysts at Cordros capital said the overnight money market rate contracted week on week by 4,637 basis points to 12.88per cent from last week’s 59.25 per cent.
The report by Cordros capital said, “The prior week started off with a surge in the overnight rate by 4,000 basis points to 99.25per cent on Monday (following reduction in system liquidity as the apex bank sold OMO bills worth N9.39 billion), while it contracted on Tuesday and for the remaining trading days of the week, as the market anticipated the inflow of N168.04 billion via maturing OMO bills (on Thursday) and the refund of excess cash deposited by banks for foreign exchange purchase today.”
The report by Cordros analysts explained that, “While we acknowledge the inflow of N95.66 billion via maturing OMO bills, and likely inflow via monthly budgetary allocations to state and local governments, we expect liquidity to remain pressured as the apex bank continues its aggressive liquidity mop up – in addition to its intervention in the currency space. Thus, we look for the overnight rate trending higher in the coming week.”