CBN opens OMO auctions to individuals and companies

The Central Bank of Nigeria has overhauled the rules it uses to manage cash in the banking system, making it easier for banks to borrow from the central bank, restarting longer-term repo operations and allowing individuals and companies to participate directly in Open Market Operations auctions.

The changes were set out in a circular signed by Okey Umeano, Acting Director of the Financial Markets Department, and take effect immediately. They are among the most significant changes to the CBN's money-market framework since the central bank tightened access to its lending facility in 2022.

فہرست

01

What has changed for banks

02

The biggest change for investors

03

Why the timing matters

04

What it means for ordinary savers

What has changed for banks

The CBN removed two restrictions that had limited when banks could use its Standing Lending Facility, also known as the Discount Window. Banks can now borrow through the facility on the same day they trade in the Nigerian Foreign Exchange Market, and they can now participate in primary auctions of government securities.

One restriction remains: a bank still cannot use the Standing Lending Facility and bid in an OMO auction on the same day.

The CBN also ended its suspension of Tenored Repo Operations. Banks can now enter repo transactions lasting between four and 90 days. The central bank said the change is intended to improve its ability to manage liquidity and strengthen the way its monetary-policy decisions affect borrowing costs in the money market.

The biggest change for investors

Under the new rules, all eligible investors, including individuals, companies and non-bank financial institutions, can participate in both primary and secondary OMO auctions. Banks will still submit bids and settle the transactions for these investors.

The CBN will continue to use a single-bid auction format and will retain discretion over the amount offered, the investment period and how often OMO auctions are held, in line with prevailing liquidity conditions and monetary policy objectives.

Why the timing matters

The changes came three weeks after the CBN's Monetary Policy Committee kept its benchmark interest rate at 26.5% for a second consecutive meeting. This leaves the Standing Lending Facility rate at about 27.0% and the Standing Deposit Facility rate at about 22.0%.

Recent OMO auctions have cleared at rates of 19.9% to 21.9%, according to the CBN's Government Securities rate sheet. The revised rules were issued further to the CBN's October 7, 2022 circular on access to the Discount Window and an October 23, 2019 letter governing OMO auctions.

What it means for ordinary savers

By opening OMO auctions to individuals and companies, the central bank is widening the pool of investors who can hold short-term government securities. Investors still go through their banks, which submit bids and settle transactions on their behalf.

The CBN directed banks, authorised dealers and other market participants to ensure strict compliance, stating that the provisions of the circular take immediate effect.