Nigeria central bank’s OMO restriction: Investors consider other options to reinvest N2.5trn
By Omobayo Azeez
Following the Central Bank of Nigeria’s (CBN’s) restriction of indigenous non-banking financial institutions and public from participating in the primary and secondary Open Market Operations (OMO) market, investors are looking elsewhere to reinvest N2.5 trillion maturing OMO bills.
According to financial analysts at United Capital, with the size of OMO maturity in the books of the non-banking corporates, which stands at 23.5 per cent of the OMO bills outstanding as of Aug-19, investors are compelled to look for alternative assets.
They reiterated on Tuesday that attention of the restricted investors will now be turned to FGN instruments, real estate, commodities, and equities; or demand for more foreign exchange (FX) in a bid to reinvest an estimated N2.5 trillion maturing OMO bills, from now till December
19, this year.
They said, “Going forward, we expect a lower yield environment. While the supply of FGN instrument is unlikely to change, the huge OMO maturities will drive up demand for FGN instruments.
“Thus, stop rates at primary market auctions will fall. Meanwhile, this should encourage corporate issuers who can now issue/rollover at cheaper rates.
“Also, fixed-term deposit rates could be lower, since banks can arm-twist their big depositors who would probably be more desperate for yields in the absence of the OMO option.
“Finally, OMO rate may stay elevated, as the CBN attempt to keep FX stable via sales to foreign portfolio investments (FPIs), however, the market for OMO bills will be less liquid.”
Recently, the CBN in a bid to cut borrowing cost and spur real sector investment barred non-banking financial institutions and public, local banks and foreign investors from participating in the primary and secondary OMO market.
Experts have explained that notably, OMO bills are discretionary liquidity and FX management instrument of the CBN, different from FGN’s T-Bills which are for managing budgeted recurrent spending.