The Open Market Operation auctions at the Central Bank of Nigeria has dropped by 67% in the first two months of 2022, a sharp contrast to its value for the same period a year ago. In January and February, the total volume of auctions was N400 billion naira as opposed to 1.1 naira in January and February 2021.
The OMO is a short-term market instrument that the CBN uses in controlling the supply of money in the economy. According to CBN data, there were a total of eight auctions were carried out in the time under review; within 2021 was carried out every week. OMO auctions are done whenever an increased supply of money drives inflation up, in order to mop up excess liquidity in the system.
For the months of January and February, the auctions were N130 billion and N270 billion respectively. The highest auction witnessed was on February 25 2022 when Nigeria’s Central Bank offered and distributed N100 billion worth of OMO bills to various participants and maintained stop rates across the three tenors: 96DTM – 7.0per cent, 180DTM – 8.5per cent and 362DTM – 10.1per cent).
Prior to now, the Central Bank of Nigeria had restricted corporate organizations and individuals from accessing the OMO market as well as banks not being allowed to buy Treasury bills on behalf of borrowing customers. The OMO had long been on the most sought-after securities in Nigeria with an annual interest rate of 15%. However, the CBN governor Godwin Emefiele has made public the apex bank’s determination to keep the exchange rate stable and avoid further devaluation of the naira. In January, he announced that CBN will cease being the sole provider of foreign exchange to commercial banks.
Nevertheless, the decline in OMO auctions suggests that there is a corresponding reduction in inflation, as it points to the fact that an excess of money within the economy is not elevated.