The Central Bank of Nigeria’s (CBN) Open Market Operations (OMOs), which reached a high of 18 times in one year, is expected to decline as inflationary pressures ease.
According to CBN data, N11.8 trillion worth of OMO bills were sold to banks and investors in 2024, a 1,773.7 percent increase over the N627.2 billion sold at auction in 2023.
According to the data, since the beginning of the year, the CBN has refunded N744.8 billion and sold OMO for N1.9 trillion.
The monetary authority’s contractionary posture is reflected in the increase in OMO operations, according to Ayokunle Olubunmi, head of financial institution ratings at Agusto & Co.
Since inflationary pressure appears to be decreasing, we expect a decline according to the rebased Consumer Price Index.
“We expect a decrease because, at least according to the rebased Consumer Price Index (CPI), the inflationary pressure appears to be decreasing,” he stated.
According to the NBS’s rebased CPI data last week, Nigeria’s headline inflation rate dropped significantly to 24.5 percent year-over-year in January 2025 (post-rebasing) from 34.8 percent year-over-year in December 2024.
According to analysts, too much liquidity causes inflation, which reduces the value of the naira. The CBN removes excess naira by selling OMO bills, which lowers inflationary pressure and contributes to the stability of the naira.
The OMO is one tool that the CBN employs to regulate liquidity in the financial system through the banking sector to control inflation and preserve exchange rate stability, according to Ayodele Akinwunmi, senior relationship manager at FSDH Merchant Bank.
He asserts that the CBN actively utilized the mechanism to absorb liquidity from the banking system during the reviewed period. Through foreign portfolio investment, it also employed a unique instrument to draw foreign investors to Nigeria. Special OMOs were issued during this time and limited to foreign investors, banks, and pension fund administrators to preserve exchange rate stability and absorb surplus liquidity.
Money supply (M3), as determined by the broad monetary aggregate M3, reached a new high of N110.98 trillion in the first month of 2025, up N2.02 trillion or 1.85% from N108.96 trillion in November of the previous year, notwithstanding the increased mop-up through OMO sales.
Additionally, the data indicates that in January 2025, the amount of cash in circulation reached an all-time high of N5.23 trillion. The amount of money in circulation rose 7.4%, or N360 billion, month over month from N4.87 trillion in November 2024.
According to analysts at Agusto & Co., the CBN may modify liquidity management in response to lower reported inflation, possibly loosening limits to encourage lending and investment, which is essential for Nigeria’s sluggish GDP development. Better access to credit may promote economic growth. The CBN must exercise caution, though. If supply-side limitations persist, prematurely loosening monetary policy risks rekindling underlying inflationary forces.
“To ensure sustainable economic growth, we think a balanced approach is necessary, weighing the benefits of easing liquidity against the risk of fuelling inflation,” the analysts stated.
