CBN cuts OMO, primary market auctions to N2.99trn to Maintain its MP Actions

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On the backdrop of maintaining its monetary policy actions with the aim of decreasing money supply in the economy, improve macro economy liquidity, the Central Bank of Nigeria (CBN), reduced Open Market Operation (OMO) and primary market auctions to N2.99 trillion in first four months of 2022, the CBN financial data has revealed. 

The CBN, in its financial data for the first four months of 2022, disclosed that it auctioned N2.99 trillion government papers between January and April 2022, indicating a decline of 17.3 per cent from N3.62 trillion between January and April of 2021.

Analysis of the financial data revealed that as primary market auction increased by 24per cent between January to April 2022 to N2.42 trillion from N1.95 trillion in prior period of 2021, OMO auctions dropped by 66 per cent to N570 billion from N1.66 trillion recorded between January and April 2021. 

OMO refers to the CBN practice of buying and selling securities on the open market in order to regulate the supply of money that is on reserve in banks. 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.

For primary market auction, it is a market where new issues of government securities are available for sale.

Meanwhile, a monthly breakdown revealed that CBN in January conducted a primary market auction worth N472.8 billion and it increased to N778.21 billion and N880.34 billion between February and March 2022 respectively. For April, a total of N289.1 billion was sold at the primary market auction by CBN. 

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However, for the OMO, CBN auctioned N130 billion in January and it increased further to N2709 billion. OMO auction dropped by 58 per cent to N120 billion in March and depreciated further to N50 billion in April 2022. 

But some analysts attributed low liquidity in the economy to the decline in OMO auction in 2022.

They maintained that the purpose of OMO is to adjust the CBN monetary policy and to ensure money in the economy is not much to spike inflation and price stability.

Capital market analyst and Vice president, Highcap Securities Limited, Mr. David Adnori in a chat with THISDAY attributed the decline in OMO auction to low liquidity in macro economy.

He explained that the CBN’s primary market auctions in 2022 is due to increasing borrowing by the federal government to finance budget deficit, maintaining that interest rate on these money market attracted investors’.

According to him: “The CBN sales T-Bill in two market platforms and the first one primary market auction and secondary market platform called the OMO. The secondary market has a market where banks and other approved dealers change T-Bill among themselves.

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“Occasionally, from its monetary policy implementations of either increasing or decreasing money supply in the economy, the CBN intervened in the secondary market which is called OMO market auction.”

He added: “When CBN buys in the OMO, it means they wanted to stabilize the economy. Then, if there is so much money in the economy, then enters the secondary market, which is the OMO and sales to withdraw money from the system. The purpose is to improve macro economy liquidity. This year, the OMO auction means there is no excess liquidity in the economy for CBN to auction.”

On his part, analyst at PAC Holdings, Mr. Wole Adeyeye said the CBN’s weak activities in OMO market was due to slow economic activities, stating that banks were concerned about lending to the real sector as demanded by the regulating body.

He explained further that, “We are witnessing weak activities in the money market and OMO market auction shouldn’t be an exception.”

Analysts at Coronation Research in their markets in review, Fixed Income Gains in Q1 2022’ report noted that Nigeria’s money markets in the Q1 2022 proved to be liquid with the result that institutional investors subscribed in high volumes to Nigerian T-bill and Federal Government auctions; “and they were equally active in the secondary markets.”

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According to the report, “the overall the secondary market yield for a 1-year T-bill fell by 0.76 per cent (to 4.48 per cent per annum) while the secondary market yield for the average of our basket of FGN bonds fell by 1.61per cent (to 10.21per cent pa).

“The CBN had restricted Nigerian corporates, and individuals access to the OMO market, also, banks were not allowed to buy 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.”

In addition, analysts at Guaranty Trust Holding Company Limited (GTCO) in their economic outlook for 2022 said: “Going into 2022, the general build-up to the 2023 Elections will very likely result in a system awash with liquidity.

“We believe that the apex bank will tighten the system from the second half of the year just as political campaigns start, to mop-up excess liquidity from the system. Although it is unlikely that the CBN will slow down on its discretional CRR debits, we expect more banks to approach the apex bank for the release of a portion of their ‘excess’ CRR to assist them in funding their transactions, payment of regulatory levies/fees, etc.”


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