CBN’s OMO Auctions Drop by 67% to N400bn on Weak Economic Activity, Illiquidity

Kayode Tokede
As the country’s financial markets continued to dance to the tune of monetary policy implementations, the Central Bank of Nigeria (CBN) in first two months of 2022 auctioned N400 billion worth of Open Market Operation (OMO).

THISDAY analysis of market data showed that the OMO auctions in the first two months of 2022 represent a decline of 67 per cent when compared to N1.16 trillion reported by the CBN in first two months of 2021.
It is, however, worthy of note that OMO is designed to be a short-term market instrument that the CBN uses to control the supply of money in the economy.

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.

Inflation rate in Nigeria has been on a steady decline since March 2121 when it was at 18.17 per cent to 15.7per cent as at January 2022, according to a report by National Bureau of Statistics (NBS).

The data obtained from the CBN revealed that a total of eight OMO sales were carried out between January and February 2022 and since 2021, the apex bank maintained OMO auction every Friday in a bid to control the supply of money.

The breakdown revealed that the CBN in January 2022, auction N130billion OMO, followed by February that recorded N270billion OMO auction.

The highest OMO auction by CBN was on February 25, 2022 when the CBN offered and allotted N100.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors (96DTM – 7.0per cent, 180DTM – 8.5per cent and 362DTM – 10.1per cent), as with prior auctions.

However, the CBN auction at the primary market, between January and February 2022 is N1.25trillion as against N936.5billion primary market sales in prior period of 2021.

Before now, the CBN had restricted Nigerian corporates, and individuals access to the OMO market, also, banks were not allowed to buy Treasury bills (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.

The CBN under Godwin Emefiele is understood to have one major mandate; keep the exchange rate stable at all costs and further devaluation of Naira. This is the cornerstone of his monetary policy and underlines every action the apex bank has taken since the President Muhammadu Buhari’s led administration came into power in 2015.

Analysts attributed lack of excess liquidity in the economy to the decline in OMO auction in the first two months of 2022.

Commenting, The Vice president, Highcap Securities Limited, Mr. David Adnori attributed the decline in OMO auction to low excess liquidity in macro economy, stressing that the N400billion auction by the apex bank is enough to serve its purpose of the economy.

He 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.

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.

“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.

“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 secondary market, which is the OMO and sales to withdraw money from the system. The purpose is to improve macroeconomy liquidity.

“The reason for the growth in first two months of 2021 was that CBN was complied to auction more OMO at the secondary market, given excess liquidity in circulation. This year, the OMO auction of N400billion means there is no excess liquidity in the economy for CBN to auction.”

On his part, analyst at PAC Holdings, Mr. Wole Adeyeye, stated that CBN’s weak activities in OMO market was due to slow in economy activates, 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.”

The CEO, Enterprise Stockbrokers Plc, Rotimi Fakayejo said the decreased OMO auction was due to the weak economy and policy stance of the CBN.

He noted that the weak OMO sales impacted on the capital market as investors renewed interest in fundamentals stocks on the Nigerian Exchange Limited (NGX).

His words, “OMO is one of the instruments CBN used in controlling money in circulation, making sure the rate of inflation is reduced. Investors will always go to where it is easy for them in terms of reaping their investment, be it short-term or long-term.”