Central Bank of Nigeria (CBN) sold OMO bills worth N3.32 trillion to eligible investors, local banks, and foreign portfolio investors in June with the twin objectives of managing excess liquidity and then attracting hard currency into the economy from offshore participants. The Nigerian monetary authority almost doubled the quantity of OMO bills it provided to market participants in three main market auctions held last month. Trading records showed that the CBN auctioned OMO bills worth N600 billion at each of the three auctions. The CBN’ OMO bill auctions have been generating US dollar inflows, and the monetary authority has been testing the waters across different durations with their issuance, as per details from the recent operations.
Given the pace at which OMO bills are expiring, some market observers are expecting more issuances in the second quarter of the year. In the second quarter, the CBN conducted eight OMO auctions, raising more than N7 trillion. Experts said new OMO issuance will allow investors to roll over their positions and keep liquidity tight in the country. “This strategy is arguably coming into question with M2 supply seeing a modest increase, suggesting that some foreign investors have converted their local currency back into US dollars upon OMO expiries”, Verto FX Limited said in a macro update. The CBN has been active in the fixed income market, selling OMO and Treasury bills to investors to manage liquidity levels in the financial system. The month of June began with strong system liquidity, but the CBN maintained its restrictive stance, conducting multiple OMO auctions with offers totaling ₦1.8 trillion and allotments exceeding ₦3.3 trillion, investment firm AIICO Capital Limited said in its monthly report.
This significantly drained liquidity at various points, driving rates briefly above 32%, the report stated. The firm, however, found these pressures were frequently offset by inflows from OMO maturities, FGN bond coupon payments, FAAC disbursements, NTB maturities, and derivation fund distributions to states. Treasury bill yields eased last month as demand strengthened across main auctions conducted as well as in the secondary market. Trading activities in the secondary market was mixed, opening the month on a cautious and subdued note. The CBN conducted three major OMO auctions, offering a combined ₦1.8 trillion and allotting ₦3.32 trillion across various tenors, with stop rates peaking at 24.64%. In its first OMO auction in July, the 260-day OMO bill saw strong demand (2.56x) with ₦745.40 billion sold at 23.99%, while the 113-day offer was undersubscribed (0.01x) at just ₦3 billion and recorded no sale. Analysts said they expect the monetary policy committee of the CBN to adopt a gradual easing approach, cutting rates amid moderating inflation.
CBN sells N3.32trn OMO Bills to investors in June, rate hits 26.64%
