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How CBN’s market operations, treasury bills differ

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The two major domestic debt instruments in the country- Open Market Operation (OMO) and Nigerian Treasury Bills (NTBs) are different from each other, contrary to the generally held public opinion.

While the Central Bank of Nigeria (CBN) remains the issuer of both instruments, the apex bank only issues the NTBs on behalf of the Debt Management Office (DMO), which stands in for the Federal Government, for financing budget plans.

On the other hand, OMO bills are strictly for liquidity management purposes of CBN in efforts to achieve price stability.

The latest report of the country’s debt figure at N25.7 trillion by DMO showed that outstanding NTBs are in excess of N2.7 trillion as of June 30, 2019, while reports put CBN’s OMO turnover in 2018 in excess of N18 trillion.

The need to understand these instruments have become necessary due to the misinterpretations that followed the apex bank’s recent prohibition of individual and corporate investments in OMO.

A top source at CBN, yesterday, told The Guardian that OMO issuance is on need basis and at irregular intervals, depending on banking system liquidity position, while NTBs’ auctions are done mostly twice a month and strictly based on quarterly released calendar.

The tenors for CBN’s OMO instruments are seven to 365 days, with the apex bank being the sole obligor for the bills, while NTBs are basically 91, 182 and 364 days and the Federal Government is the obligor.

“In terms of type of auction, OMO allows for single bids, where Money Market Dealers can submit only one bid. However, multiple bids are allowed under NTBs and Money Market Dealers can submit several bids. OMO Bills and NTBs each have their own unique identities, separate from other securities or instruments in the money market,” the source said.

The explanation puts to rest the erroneous attribution of OMO to NTBs and the inclusion of treasury bills in the circular that prohibited investments from individuals and corporate organisations, a development that had already created tension for the pension fund operators that are major investors in the debt.

But speaking with the Director of Corporate Communications Department, CBN, Isaac Okorafor, he said the misrepresentations can create panic in the system, when the intention of the new policy was aimed at stabilizing market activities and drawing foreign inflows.

Some reports (not The Guardian) had claimed that the exercise of the discretionary power of the Central Bank of Nigeria (CBN) to regulate the economy may soon have a negative impact on the country’s N9.4 trillion pension funds.

In the circular signed by the Director of Financial Markets Department, Angela Sere-Ejembi, banks were directed to exclude individuals and local corporates from investing in Open Market Operations (OMO) auctions with effect from October 23, 2019.


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