In its effort to manage the money supply and curb inflation, the Central Bank of Nigeria (CBN) in 10 months has mop-up estimated N3.96 trillion excess liquidity using the Open Market Operations (OMO) auctions.
OMO sales operation by the apex bank has increased significantly in 2017 and reached record high of about N892.8 billion in September.
As a result of its restrictive monetary policy, the apex bank intensified its mop up of excess liquidity in the system by sale of treasury bills with OMO.
The CBN not only uses OMO but Treasury Bills and Federal government Bonds to stem inflationary pressure and curtail liquidity arising from maturing bills. According to CBN, OMO sales have attracted rates between 17.5 per cent and 18.5per cent, a move to keep the foreign exchange stable.
The CBN’s Governor, Mr. Godwin Emefiele at the Annual Bankers’ Dinner hosted by Chartered Institute of Bankers of Nigeria (CIBN) in Lagos during the weekend, said, “We have also used Open Market Operations to support our restrictive policy stance.”
He maintained that the restrictive policy stance of the CBN were critically juxtaposed objective of price stability with the benefits of growth recovery. Emefiele in his speech titled, ‘Policy Options for Sustaining Nigeria’s Economic Upturn’, “Based on balance of evidence, expert judgment and boldness, the consensus of the committee was that the welfare gains of rapidly achieving price stability outstripped the benefits of an overriding focus on output stabilization.”
Data from the CBN’s website revealed that N491.5 billion was auctioned through OMO in January but dropped to N407.5 billion in February. In March, the CBN mopped up N380.2 billion using the OMO while in April and May, it moppedup N262 billion and N303.3 billion respectively.
The OMO sales closed at N467.6 billion in June and N779 billion in July, data from CBN website disclosed. Furthermore, OMO sales in August hits N800billion mark to N872.86 billion while in September, it dropped to N631 billion and increased to N892.8billion in October.
The OMO and T-Bills mop-up by CBN continued to drain Naira in circulation, dropping to N1.78 trillion in September. The N1.78 trillion currency in circulation is the second lowest, after N1.76 trillion in July and N1.87 trillion in June as the apex bank continued to mop up excess liquidity in a bid to reduce money supply in the nation’s economy.
According to the CBN, Naira in circulation was estimated at N1.86 trillion in August 2017, 5.6 per cent increase over N1.76 trillion in July. The Managing Director, Maxifund Investments and Securities Limited, Mr. Okechukwu Unegbu, attributed the increased OMO sales to improved economy and policy stance of the CBN.
He noted that OMO sales have impacted on the capital market and money market as investors are reaping from the daily auction. In his words, “OMO is one of the instruments CBN used in controlling money in circulation, making sure the rate of inflation is reduced.