The Open Market Operations (OMO) by the Central Bank of Nigeria (CBN), which rose to as high as 18 times in one year, are seen declining as inflationary pressures slow.
The CBN sold N11.8 trillion OMO bills to banks and investors in 2024, rising by 1,773.7 percent over the period, compared to N627.2 billion auctioned in 2023, data from the CBN indicated.
The data showed that year-to-date, the CBN has auctioned OMO worth N1.9 trillion and repaid N744.8 billion since the beginning of the year.
Ayokunle Olubunmi, head of financial institution ratings at Agusto & Co, said the uptick in OMO activities reflect the contractionary stance of the monetary authority.
“We anticipate a decline as the inflationary pressure seems to be declining, at least based on the rebased Consumer Price Index (CPI),” he said.
The NBS last week rebased the CPI reading, which revealed a sharp reduction in Nigeria’s headline inflation rate to 24.5 percent year/year in January 2025 (post-rebasing), compared with the pre-rebasing reading of 34.8 percent y/y in December 2024.
Analysts posit that excess liquidity leads to inflation, which weakens the naira’s purchasing power. By selling OMO bills, the CBN mops up excess naira, reducing inflationary pressure and helping to maintain the naira’s stability.
Ayodele Akinwunmi, senior relationship manager at FSDH Merchant Bank, said OMO is one tool that the CBN uses to manage liquidity in the financial system through the banking industry in order to control inflation rate and maintain exchange rate stability.
According to him, the CBN used the tool actively during the period under review to mop up liquidity in the banking system. It also used it as a special tool to attract foreign investors into Nigeria through the foreign portfolio investment. Special OMOs were issued and restricted to foreign investors, banks and pension fund Aladministration during the period to maintain exchange rate stability and mop up excess liquidity.
In spite the increased mop-up through OMO sales, money supply (M3), as measured by the broad monetary aggregate M3, hit a record high of N110.98 trillion in the first month of 2025, marking an increase of N2.02 trillion or 1.85 percent compared to N108.96 trillion in November last year.
The data also showed that currency in circulation rose to an all-time high of N5.23 trillion in January 2025. On a month-on-month basis, money in circulation increased by 7.4 percent or N360 billion from N4.87 trillion recorded in November 2024.
Analysts at Agusto & Co, said with lower reported inflation, the CBN may adjust liquidity management, potentially easing restrictions to boost lending and investment, crucial for Nigeria’s slow GDP growth. Improved credit access could stimulate economic expansion. However, the CBN must tread carefully. Prematurely easing monetary policy risks reigniting underlying inflationary pressures, especially if supply-side constraints remain.
“We believe a balanced approach is required, weighing the benefits of easing liquidity against the risk of fueling inflation, to ensure sustainable economic growth,” the analysts said.
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