COVID-19: CBN’s OMO Auctions Drop By 71% To N4.38trn
As the country’s financial markets continued to dance to the tune of monetary policy actions amid the impacts of Covid-19 on the economy, the Central Bank of Nigeria (CBN) auctioned only N4.38 trillion worth of Open Market Operation (OMO) in 2020, representing a decline of 71 per cent in 2020, compared to N15.11 trillion reported in 2019.
CBN through its heterodox policy actions, following restrictions on OMO bills in late 2019, arguably remained the conductor of the orchestra, setting the tempo for capital flows.
The weak business activities due to COVID-19 lockdown saw OMO auctioned by the apex the bank further dropped to N413.41billion, as against N1.54 trillion auctioned in January of 2020.
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 CBN believes the inflation rate is high due to increased money supply it sells OMO to mop-up excess liquidity in the system.
Analysis of the figure obtained from the CBN website indicated that 30 OMO sales were carried out in 2020, against 61 OMO sales was carried out by the apex bank in the previous year.
The breakdown for 2020 revealed that the CBN in January, sales N1.54trillion OMO, the highest, followed by February that recorded N1.12trillion OMO sales.
However, the COVID-19 lockdown affected OMO sales in March and April as CBN sold N110.51 billion and N290 billion respectively.
Consequently, CBN sold N214 billion OMO in May and N210 billion in June 2020.
Further checks, showed that that N100 billion OMO was sold in July, N169.77billion in August and N170.07billion in September 2020. But in the last quarter of 2020, a total of N450 billion OMO was sold by CBN (N160billion was sold in October and November and N130 billion in December).
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.
Analysts explained that CBN moves were to form moral coercion on the banks to increase their loans to the private sector.
The head of research, PanAfrican Capital Holdings Ltd, Moses Ojo stated that CBN’s weak activities in OMO market were due to COVID-19 lockdown, stating that banks were concerned about lending to the real sector as demanded by the regulating body.
He explained further that, “It was weak activities in the money market last year. OMO market shouldn’t be an exception. Banks were focused on lending to the real sector during the lockdown and
“However, it is believed that an increase in bank credit to the private sector will lead to increased growth and employment. The banks are wary to rapidly grow risk assets at a time of high default risk.”
The CEO, Enterprise Stockbrokers Plc, Rotimi Fakayejo said the decreased OMO sales 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 Stock Exchange (NSE).
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.”
The apex bank in its economic report for the third quarter of 2020 stated that “The bank managed liquidity via direct OMO and discount window activates in the third quarter of 2020.
“Thus, the bank sold CBN bills of tenors rating from 75 to 362 days. The total amount offered, subscribed and allotted were N640 billion, N1.39trillion and N625.13 billion, respectively, with a bid rate of 6.4 per cent, while the top rate was 6.9 per cent.”
Analysts at Financial Derivates Company Limited (FDC) had stated that the banned of corporates and individuals would give room for foreign portfolio investors, as OMO auctions are mostly oversubscribed.
