UBA ads

The Central Bank of Nigeria (CBN) has directed all banks to exclude individuals and local corporates from investing in Open Market Operations (OMO) auctions with effect from October 23, 2019.

In a circular signed by Director, Financial Markets Department, CBN, Angela Sere-Ejembi, and cited by Nairametrics, the banker insisted that participation of the financial institutions at the auction should be on proprietary and non-proprietary basis, without the participation of the investors mentioned above.

[READ MORE: CBN, 15 DMBs inject N228.2 billion in AMCON’s sinking fund]

Good side of the directive: The development is expected drive foreign inflows by restricting individuals and local corporate, leaving only the banks and foreign investors to participate at the auction.

On the flip side: There are concerns by some experts that the direction of the apex regulator is still unclear.

For instance, Comercio Partners Limited explained that its concerns remains the seeming unclear direction of the CBN with regards to monetary policy.

It stated, “This is a follow up to the circular released last week warning banks that all demand at auctions must be effective and fully backed by appropriate funding after observing high levels of unfunded bids at the OMO auction. 

“Whether this is a move aimed at protecting the Naira, checking the excesses of banks or managing its OMO issuance cost, the move would certainly engender some level of uncertainty, which markets do not like.” 

Background: In a circular dated October 18, 2019, CBN had ordered lenders to ensure they have secured funding before bidding for short-term government securities.

[READ ALSO: CBN disagrees with IMF, says land border closure boosting local production]

What it means: The directive, which took effect October 21, 2019, requires that all demand at auctions be “fully backed by appropriate funding” as it has observed a high level of unfunded demand.

app

Non-compliance to the directive, CBN stated that the “sanctions could include cancelling bids.” 

Meanwhile, Bank of America Corp. attributed the recent slide in demand for Nigerian bonds to the slowdown in the global economy as well as weak sentiment toward emerging-market assets. The West African nation depends on inflows into debt securities that yield more than 14% to help support the Naira.

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - abiola.odutola@nairametrics.com.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.