CBN Sells N8.5trn OMO Bills in January to Tighten Liquidity, Stabilise Naira
- The CBN sold about N8.5 trillion in OMO instruments in January to tighten liquidity
- Afrinvest said the move drove system liquidity into a N2.4 trillion deficit
- Interbank lending rates rose sharply as cash became scarcer
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Oluwatobi Odeyinka is a business editor at Legit.ng, covering energy, the money market, technology and macroeconomic trends in Nigeria.
The Central Bank of Nigeria (CBN) stepped up its liquidity-tightening efforts in January, selling about N8.5 trillion worth of Open Market Operation (OMO) instruments to banks and investors in a bid to rein in inflation and stabilise the naira, The Sun reported.
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OMO auctions are a key monetary policy tool used by the apex bank to manage liquidity. By selling interest-bearing securities, the CBN withdraws excess cash from the financial system, helping to reduce inflationary pressures and ease strain on the exchange rate.
According to Afrinvest’s January market report, the aggressive OMO sales contributed significantly to negative system liquidity, with average balances closing the month at a deficit of N2.4 trillion.
The report noted that liquidity remained tight despite inflows from maturing OMO bills and other repayments, highlighting the CBN’s resolve to sustain restrictive monetary conditions.
Cash availability to commercial banks squeezed
Afrinvest explained that OMO sales, alongside N2.9 trillion placed at the Standing Deposit Facility and N3.7 trillion raised from primary market sales, outweighed inflows of N5.6 trillion from OMO maturities and N2.8 trillion from maturing treasury instruments. As a result, cash available to commercial banks remained constrained.
The tight liquidity environment pushed up interbank borrowing costs. The Open Buy Back Rate (OPR) and Overnight (OVN) rate both rose by 3.6 percentage points month-on-month to 26.1% and 26.4%, respectively, the report said.
The CBN’s approach signals a return to orthodox monetary policy after years of excess liquidity driven by fiscal financing and intervention programmes. By issuing high-yield OMO bills, the bank has sought to absorb surplus naira liquidity while reinforcing its commitment to price and exchange rate stability.
Last week, the CBN announced OMO offers of N600 billion across 210-day and 350-day maturities, attracting subscriptions of N4.8 trillion, although no allotments were made.
At a subsequent auction offering about N600 billion across 208-day and 348-day maturities, total subscriptions rose to N5.92 trillion. The apex bank eventually allotted N3.78 trillion at stop rates of 17.02% and 17.25%.
A senior treasury official at a tier-1 bank said the scale of the OMO sales has reshaped money market dynamics, forcing banks to focus more on funding and balance sheet management. He added that attractive risk-free OMO yields have reduced incentives to extend long-term private sector credit.
Beyond domestic liquidity management, analysts say high OMO yields could attract foreign portfolio inflows seeking carry trade opportunities, potentially supporting the foreign exchange market.
Expert urges fiscal discipline
Commenting on the strategy, Head of Research at FSL Securities, Victor Chiazor, told The Sun that the January OMO sales reflect the CBN’s preference for market-based tools rather than administrative controls. However, he warned that lasting exchange rate stability would also depend on fiscal discipline and improved dollar inflows from oil and non-oil sources.
Similarly, economics professor Sheriffdeen Tella cautioned that sustained liquidity tightening must be carefully monitored to avoid excessive credit contraction. Chief Economist at SPM Professionals, Paul Alaje, added that while OMO auctions can help manage inflation and reduce pressure on the naira, the CBN must ensure that credit flows to the real sector are not unduly constrained.
For now, the CBN’s message is clear. By withdrawing N8.5 trillion from the system in a single month, the apex bank has signalled its readiness to tolerate tight financial conditions in pursuit of macroeconomic stability, with banks and investors adjusting expectations around funding costs and credit availability.
Source: UGC
Naira rises 3.6% as investors bring dollars
Legit.ng reported that Nigeria's Naira appreciated 3.6% in January, marking its strongest monthly performance in nearly two years.
Foreign investors returned to the forex market as liquidity improved, bolstering the naira's value in both official and parallel markets.
Also, Nigeria's gross external reserves surpassed $46 billion, providing a critical buffer for currency stability amid ongoing reforms.
Proofreading by Funmilayo Aremu, copy editor at Legit.ng.
Source: Legit.ng
