Nigeria’s Central Bank has neither issued nor rolled over matured Open Market Operation (OMO) for the past three weeks.
A couple of reasons might be responsible for this according to Olusegun Akintunde, financial market analyst at Polaris Bank Limited. First, the bill is no more sufficient as a tool to attract FX inflow from FPIs given the country’s current FX situation.
Second, the use of CRR discretionary (unorthodox measure) debit by CBN to mop up cash from the system has so far replaced the need for OMO in this regard as it’s more cheaper for CBN. CRR debits is at zero cost to the Apex Bank while OMO bill the use of OMO bill for same purpose come at a cost to them.
The Central Bank of Nigeria (CBN) has within the last four months precisely, April to July 2020, debited banks about N2.2 trillion for breaching its Cash Reserves Requirements (CRR).
OMO bill was last issued on the 2nd of July, 2020 when they sold N100bn as against N333bn that matured. OMO bills worth N92.58bn, N69.54bn and N25.35bn that matured on the 9th, 16th and 21st of July , 2020 respectively was repaid without any sale.
Efforts to get the CBN to respond to this was not successful as its spokesman, Isaac Okorafor, said he was in a meeting.
Analysts at FSDH research said No OMO auctions was mainly due to Low yields and lack of interest by investors. This they said discourages investors and that is why they are in a “wait and see” mode.
Foreign Portfolio Investors currently are unable to repatriate their FX profits due to forex shortages.
The FX daily turnover at the Investors and Exporters (I&E) forex window declined by 11.01 percent to $38.86 million on Monday from $43.67 million recorded on Friday last week, data from FMDQ indicated.
The CBN recorded another FX reserve drawdown as FX outflows outpaced inflows. FX reserves declined by $86.69 million Week-To-Date to $36.00 billion. In the I&E FX market on Monday, trade volumes remained subdued due to tightened liquidity. Naira appreciated marginally by 0.06 percent as the dollar was quoted at N389.25 as compared to N389.50 on the previous day. Most participants maintained bids between N361.00 and N390.94 per dollar, a report by FSDH research stated.
Naira on Tuesday weakened by N1.00k as the dollar was sold at N473 as against N472 sold last week on the black market.
It was a dull day for the bulls at the OMO space on Monday as the market offers dried up due to the non-issuance of OMO by the Apex bank despite the robust system liquidity available to gulp large bill sizes.
A report by Zedcrest Capital Limited showed that the robust interbank system liquidity of about N604.45 billion continues to tapper down rates with no major funding need to drag rates upward.
Consequently, Open Buy-back (OBB) and Overnight (OVN) rates lost approx. 22% compared to Friday’s levels closing the day at 1.13% and 1.88% respectively.
“With no significant funding pressures and reduced probability of an OMO auction, we expect the market rate to remain around this level at the interbank trading session on Tuesday,” analysts at Zedcrest said.
The CBN is scheduled to roll over maturing NT-Bills worth N266.0bn through a Primary Market Auction (PMA) auction on Wednesday.
Also bond coupon payments worth N49.6 billion is expected to hit the financial market this week. “The Apex bank may likely conduct an OMO auction to keep rates and system liquidity in check. Thus, the anticipated inflow from bond coupon payments (about N49.6bn) may not be sufficient to bolster liquidity. While this may slightly impact demand, we expect investors’ focus to be skewed towards the PMA, analysts at Afrinvest Securities Limited said.
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