The Central Bank of Nigeria says it has barred local corporates and individuals from participating in both primary and secondary activities of OMO market, as it makes extra efforts to boost credit flow to the real economy.
In a circular released today (Oct. 24) with number FMD/DIR/GEN/OGC/14/010, titled “LETTER TO ALL BANKS, RE: OPEN MARKET OPERATIONS AUCTIONS”, the CBN said: “Please note that the restriction on Open Market Operations Bill purchase by DOMESTIC corporates (inclusive of non-bank financial institutions) and individuals applies to both primary and secondary market activities.”
“We don’t want to leave room for arbitrage,” central bank spokesman Isaac Okorafor said in a text message to Bloomberg. It will discourage banks from giving loans to “speculators” who want to buy government securities instead of investing in the “real economy.”
The image-maker of the apex bank said the measures are in line with a wider policy to penalize banks that don’t boost lending.
OMO is a liquidity management tool used by the CBN to control the volume of money in circulation.
A central bank injects or withdraws liquidity in its currency through the banks by buying or selling government bonds.
In recent years, however, the OMO window has become another avenue for local investors and non-banks to benefit from attractive rates on the bills, starving the real sector of much-need credit.
Details shortly…
SEGUN ADAMS
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