Here’s why it happened
Central Bank of Nigeria cuts treasury bills sale by over half. Source: shutterstock.com
N7.77 trillion worth of secondary market (Open Market Operations, OMO) treasury bills were sold by the Central Bank of Nigeria in 2020. That’s down by 62% from N13.92 trillion sold in 2019, according to AfroNews.com.
One?of the tools used by the CBN to?manage?the?availability?of money in the economy is the Secondary Market Treasury Bill?(TB). When the CBN needs?to?minimize?the supply of money, it sells OMO treasury bills and sells OMO TBs when it wants to?collect?money.
The?sharp decrease?in sales of OMO TB in 2020 reflects the?effect?of the decision?of?the apex bank to?bar?local investors, individuals, and?businesses?from investing in OMO bills.
The apex bank thus?limited?investments in OMO TBs to banks and foreign investors in the portfolio.
The ban, which entered into effect on 23 October 2019, was implemented to prohibit banks from using OMO TBs in order to bypass the CBN’s 60% minimum Loan to Deposit Ratio directive.
This?caused?the OMO TBs sold by the apex?bank to?decline?steadily?in the first three quarters of the year.
Financial Vanguard research showed that in Q1 2020, the CBN sold N4.4 trillion worth of OMO TBs, up 18% from N3.77 trillion sold in Q4 2019, while it repaid N6.13 trillion worth of matured bills, translating to N2.36 trillion net liquidity injection.
In Q3?2020,?the CBN further?decreased?OMO TB?revenues?by?69% to N625.13 billion?while?repaying?matured bills worth?N3.3?trillion, translating to?a?net?infusion?of liquidity of?N2.67?trillion.
However, the apex bank?raised?sales of OMO TBs?marginally?by 12% to?N700?billion?in Q4 2020, although?it repaid matured bills worth?N3.53?trillion, translating to?a?net liquidity?infusion of N2.83 trillion throughout the quarter.
We’ve reported that Kenyan smart addressing startup launches in Nigeria.
SEE ALSO:
Pay Space
Our editorial team delivers daily news and insights on the global payment industry, covering fintech innovations, worldwide payment methods, and modern payment options.
