Sources in the central bank have denied a recent Bloomberg report that the CBN will be unwinding its Open Market Operations programme which has targeted foreign investor inflows for the last three years.
According to a Bloomberg article, the central bank was “preparing an end to an era of debt sales” in reference to OMO bills which are highly lucrative risk-free securities loved by foreign investors due to their relatively high yields.
The report cited comments from CBN director of monetary policy, Hassan Mahmud who they claimed said: “offerings to non-residents of so-called Open Market Operations bills — introduced to help stabilize the naira following the oil-price collapse in 2015 — are to be phased out once current obligations have been redeemed.”
However, a senior source within the central bank denied this claim reiterating that there are no plans to unwind the sale of OMO bills to foreign investors. The source who preferred anonymity as the bank was yet to comment officially claimed it was “fabricated” and not true.
Why this matters
The central bank has relied on Open Market Operations as a means of attracting Foreign Investor dollars into the country. The dollars are also used as a liquidity buffer for the country’s falling external reserve and a major factor in stabilizing the exchange rate between 2016 and 2019.
- To achieve this purpose, OMO bills were priced at attractive yields (as high as 18% per annum at some point) and were a major source of earnings for yield-hungry foreign investors. The CBN also provided them with near guarantees on their foreign exchange hedging it via FX Swaps.
- However, in 2019, the CBN yanked off local and institutional investors from accessing OMO market leaving foreign investors and banks as the only buyers of the bills.
- A recent Chapel Hill report read by Nairametrics suggests OMO bills held by foreign investors topped $11 billion as of June 2020.
- The report also claims CBN OMO sales dropped by 70% to a 5-year low of N6.5 trillion in 2020.
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