By Jennete Ugo Anya
The Central Bank of Nigeria (CBN) recently intensified Open Market Operations (OMO), issuing N18.79 trillion in bills, a 426 percent increase from N3.57 trillon in Q1 2025, while allowing higher repayments to moderate net liquidity withdrawal to N1.81trillion. The intervention, executed through short-term debt instruments in Nigeria’s money market, reflects a calibrated strategy to control liquidity, stabilise the exchange rate, and retain foreign portfolio flows amid global volatility.
DECISION HIGHLIGHT
Shift to high-volume but moderated net OMO intervention, balancing liquidity tightening with financial system stability.
DECISION MEMO
The pattern indicates a transition from blunt liquidity withdrawal to precision management. Gross issuance has expanded sharply, but net impact remains contained, suggesting the CBN is prioritising signalling and market positioning over aggressive contraction.
Analyst at Agusto and Co, Olubunmi Ayokunle, stated that the disparity between issuance and turnover “reveals a highly active secondary market where liquidity is continuously recycled,” reinforcing the role of OMO bills as tradable assets rather than static policy tools.
Charles Fakrogha, Chief Executive Officer of ECL Asset Management, framed the mechanism directly, noting that “OMO is used to stabilise liquidity… when there is too much money in the system, the Central Bank withdraws it.” The implication is cyclical calibration rather than directional tightening.
The elevated yields, approaching 21.9 percent on short tenors, signal an external objective, capital retention. In a competitive global environment, Nigeria is using yield differentials to sustain foreign investor participation while managing exchange rate pressures.
However, the increasing dominance of OMO bills in the fixed income market introduces structural distortions. High government-linked yields can crowd out private sector borrowing and deepen reliance on short-term instruments, raising refinancing sensitivity.
DATA BOX
• OMO sales Q1 2026 N18.79trn vs N3.57trn +426 percent
• OMO repayments N16.98trn vs N1.56trn +990 percent
• Net OMO sales N1.81trn vs N2.01trn −10.1 percent
• FMDQ turnover N59.45trn vs issuance N18.79trn
• Peak monthly sales January N8.54trn
• Short-term yields up to 21.9 percent
• Nigeria 2026 budget deficit N20.12trn
WHO WINS / WHO LOSES
Winners: Fixed income investors, foreign portfolio investors, liquidity traders, banks.
Losers: Private sector borrowers, long-term capital seekers, credit-dependent businesses.
POLICY SIGNALS
Indicates a liquidity management framework focused on exchange rate stability and capital retention rather than growth acceleration.
INVESTOR SIGNAL
High yields and active secondary markets enhance attractiveness of Nigerian fixed income assets, though exposure remains sensitive to policy shifts.
RISK RADAR
Primary risk is crowding out of private credit due to elevated sovereign yields. Secondary risks include refinancing pressure from short-term instruments, capital flow reversals if yields decline, and persistent tension between liquidity tightening and growth objectives.
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