The Central Bank of Nigeria implemented significant changes to its cash management framework, broadening access to its Open Market Operations (OMO) and easing restrictions on commercial bank borrowing. The updates, effective immediately, allow individuals, companies and non-bank financial institutions to participate in OMO auctions for the first time.
Historically, OMO participation was limited to banks and a few large institutions, serving as a primary tool for the central bank to manage naira liquidity. Under the new rules, banks will still place bids and handle payments on behalf of these new investor classes, but the scope of market access has expanded considerably.
The CBN also removed penalties that previously prevented banks from accessing its Standing Lending Facility (SLF), the central bank's emergency borrowing window. Banks can now use the SLF on the same day they engage in foreign currency transactions within the Nigerian Foreign Exchange Market or participate in government bond sales.
Two specific bans on same-day SLF access were lifted. The sole remaining restriction prevents banks from borrowing at the discount window and bidding in an OMO auction on the same day, according to a circular signed by Okey Umeano, acting director of the Financial Markets Department.
The central bank also restarted tenored repurchase (repo) operations, which had been suspended. These repo deals will run for periods ranging from four to 90 days. Officials said the reintroduction will give the CBN a more granular tool to manage systemic cash levels and improve transmission of its interest rate decisions through the money market.
These policy adjustments represent the most substantial update to Nigeria's money market regulations since the central bank tightened access to emergency funds in 2022. The reforms aim to streamline liquidity management while maintaining a firm stance on inflation control.
The changes arrive three weeks after the Monetary Policy Committee (MPC) held the main interest rate at 26.5 percent for the second consecutive meeting. CBN Governor Olayemi Cardoso cited persistent inflation and risks from the Middle East as factors in the decision to hold rates steady.
Inflation eased marginally to 15.91 percent in June from 15.93 percent in May. Despite that improvement, the MPC kept other key settings unchanged, including the corridor between the main rate and the standing facility rates and the cash reserve requirements imposed on banks.
By easing access to funding tools while sustaining high interest rates, the CBN is separating its immediate fight against inflation from its daily cash management responsibilities. This allows for more flexible liquidity injections without signaling a shift in its anti-inflationary posture.
Commercial banks are expected to face lower costs when participating in the foreign exchange market and government bond sales. The return of tenored repo operations gives the central bank a finer instrument to stabilize interbank rates between scheduled MPC meetings.
The expansion of OMO to a wider investor base allows the central bank to draw on a broader pool of naira liquidity, increasing demand for OMO instruments and potentially improving the effectiveness of its open market operations.
The continued rate of 26.5 percent and high cash reserve requirements signal the CBN's commitment to curbing inflation. How these dual objectives interact will become clearer as the new framework takes hold.
