Big Boost of Naira as CBN Offers High OMO Rates To Attract Investors
- The naira has once again appreciated slightly in the official market, closing the previous week at N1,535.08/$1
- The appreciation was also witnessed for the naira against the pound sterling and euro in the official market
- There is a big boost for the naira as the CBN, in its bid to attract forex inflows, is offering OMO bills at a high rate
Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.
The Central Bank of Nigeria has sold almost N900 billion ($586 million) in short-term bills at yields of up to 25.99% as a spot rate for OMO bills with 124 days to maturity.
The apex bank floated N600 billion in open market operation (OMO) bills across two maturities after excess liquidity from maturing securities left the financial system awash with cash.
Source: Getty Images
OMO bills are short-term debt instruments issued by the Central Bank of Nigeria to manage liquidity.
To buy these bills, foreign investors bring in dollars, which increases FX inflows into Nigeria.
CBN use OMO to boost forex liquidity
The auction drew N1 trillion in demand, with the bank allotting N897.2 billion, according to auction results seen by Reuters.
OMO bills maturing in 89 days cleared at a stop rate of 25.50%, while those with 124 days to maturity were allotted at 25.99%.
Analysts said the unusually high rates were aimed at drawing foreign portfolio inflows and supporting the naira, which has come under pressure in recent weeks despite broad-based reforms designed to attract offshore capital.
The central bank has relied on OMO sales at high spot rates to maintain foreign interest in Nigeria’s debt market and provide a steady stream of dollar inflows for the foreign exchange markets.
A Lagos-based fixed-income trader said.
“The CBN is clearly using OMO yields as a policy lever to sustain FX inflows and manage liquidity, even if it means paying significantly higher rates."
The OMO auction followed the maturity of more than N1 trillion in bills this week, which reversed a liquidity deficit into a surplus.
Source: Getty Images
Naira appreciates against US dollar
On Friday, August 22, the naira appreciated by 0.1% in the Nigerian Foreign Exchange Market (NAFEM), closing at 1,535.08 per dollar from 1,535.89 a day earlier.
The local currency also gained against the pound sterling, rising by N7.43 to 2,061.40, and firmed by N6.08 against the euro to 1,781.87.
In the parallel market, it traded flat at 1,545 per dollar.
Market watchers expect the local currency to remain range-bound between 1,530 and 1,560 per dollar in the near term.
By mopping up funds through high-yielding bills, the central bank aims to control inflationary pressures and steady the naira.
Speaking to Legit.ng, Aminu Gwadabe, President of The Association of Bureau De Change Operators of Nigeria (ABCON) said:
“The CBN should not stop carefully selling dollars to BDCs, as they play an important role in the forex market by easing pressure and helping to support the naira.”
Nigeria's foreign exchange market faces volatility
Earlier, Legit.ng reported that foreign exchange inflows have improved with non-bank corporates investing over $1.2 billion in July, up from $800 million in June.
Overall, foreign exchange inflows into Nigeria's market increased from $3.1 billion in June to $3.8 billion in July, a 24% month-over-month increase.
Source: Legit.ng
