The Central Bank of Nigeria (CBN) appears to be recalibrating its monetary policy strategy as it opens the Open Market Operations (OMO) market to a broader range of investors, increases shorter-dated OMO issuances and allows billions of naira in maturing private OMO placements to run off without refinancing.
The developments have fuelled speculation that the apex bank could be preparing the ground for easier monetary conditions, although an outright cut in the Monetary Policy Rate (MPR) may not be imminent.
The CBN recently announced that all investors with available funds can participate in the OMO market, effectively reversing restrictions introduced in 2019.
The earlier restrictions were introduced when the country was dealing with substantial system liquidity, high sterilization costs, and persistent foreign exchange pressures. The policy segmented the OMO market, allowing banks and foreign portfolio investors to participate under different conditions.
With the restrictions now removed, yields on OMO securities have begun to moderate.
Market analyst Olaolu Boboye noted that OMO bills had previously traded at a yield premium of about 2 percentage points over Nigerian Treasury Bills (NTBs). Following the policy change, the premium has narrowed to approximately 0.45 percentage points.
The narrowing spread raises the possibility that OMO and NTB yields could eventually converge as restrictions on market participation disappear.
Rate Cut or Corridor Adjustment?
The movement in OMO yields has also raised questions about the next direction of monetary policy.
The CBN’s current MPR stands at 26.5 per cent, while banks can borrow from the apex bank through the Standing Lending Facility at MPR plus 50 basis points, translating to a lending rate of 27 per cent.
On the other side, banks can place excess liquidity with the CBN through the Standing Deposit Facility at MPR minus 400 basis points, giving an effective deposit rate of 22.5 per cent.
This difference represents the asymmetric corridor around the MPR.
According to Boboye, the SDF rate has increasingly become the effective anchor for short-term money-market rates, making the MPR less influential as a direct reference point for short-term market pricing.
He noted that the average spread between OMO and SDF rates over the past three months had been about 31 basis points but had recently widened to approximately 53 basis points.
For the gap to narrow, OMO yields would have to rise, the SDF rate would have to fall, the MPR could be reduced, or the CBN could combine some of these measures.
However, a rise in OMO yields appears less likely given the renewed participation in the market, while an immediate MPR cut could prove difficult amid inflationary pressures and the potential for election-related spending to build ahead of the 2027 elections.
This leaves a possible reduction in the SDF rate—and consequently an adjustment to the asymmetric corridor—as one potential avenue for easing short-term monetary conditions without formally reducing the headline MPR.
The direction of policy is expected to become clearer at the next meeting of the Monetary Policy Committee (MPC).
CBN Shifts to Shorter-Dated OMO Bills
Another notable development is the CBN’s increased issuance of shorter-dated OMO securities.
The move could help reduce the cost of sterilising excess liquidity, with OMO issuance costs reportedly exceeding ₦5 trillion year-to-date.
It may also signal that the apex bank is positioning itself for a possible significant reduction in interest rates after the 2027 general elections, according to the market analysis.
All outstanding OMO securities as of the current period are expected to mature on or before January 26, 2027, potentially giving the CBN greater flexibility in reshaping its liquidity-management strategy.
Billions in Private OMO Placements Mature
The CBN is also allowing some private OMO placements to mature without refinancing them.
Private OMOs are not illegal. They refer to off-auction or bilateral placements of OMO bills by the CBN with selected investors rather than securities offered through a broadly announced competitive auction.
About $1.2 billion in such placements reportedly matured in June, followed by another approximately $1 billion in July, without being rolled over.
A further $1.5 billion in private OMO placements is expected to mature between August and October.
The decision not to refinance these instruments does not necessarily mean the CBN no longer wants the funds. Rather, it could indicate a preference for bringing those investors into the competitive OMO auction process.
Taken together, the changes suggest that the CBN is gradually reshaping how it manages liquidity, prices short-term securities and interacts with investors in the OMO market.
For investors and financial-market participants, the key question now is whether these adjustments are simply operational changes or early signs of a broader shift towards monetary easing.
