CBN Removes over N1trn Excess Cash from Access Bank, Zenith, Others To Fix Naira Fall, Inflation

• The Central Bank of Nigeria has revealed that it mopped up about N1 trillion via Open Market Operations
• The move is aimed at reducing excess liquidity in the system, fighting inflation, and stemming naira depreciation
• The CBN is determined to find a solution for the Nigerian economy and has released various guidelines to make it happen

Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.

The Central Bank of Nigeria mopped up about N1.5 trillion through Open Market Operations (OMO) auctions.

The activities were carried out between October 2023 and January 2024 to combat inflation and reduce excess liquidity, putting pressure on the forex market.

What to know about CBN's OMO?

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OMO is a liquidity management tool issued by the CBN to control the volume of money in circulation.

When the central bank observes there is excess money in supply, it sells OMO bills – also called CBN bills – to investors through the banks to mop up the surplus funds and vice versa.

A government security is a bond or any other debt instrument issued by a government authority with a promise of repayment after maturity.

Excess money in circulation could cause the aggregate demand for goods and services to rise above supply in the economy, thereby worsening Nigeria’s already high inflation rate, a situation contrary to CBN’s core mandate of ensuring price stability.

Breakdown of CBN's OMO activities

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Analysis of the CBN data shows that since Olayemi Cardoso took the helm as Governor, there have been six auctions, but five summed up to the N1.5 trillion raised so far.

In 2024 alone, the CBN has had three OMO bill auctions and has mopped N1 trillion in liquidity.

IMF advises CBN on OMO

The International Monetary Fund (IMF) recently recommended that the CBN raise OMO bills of up to N2 trillion in 12 months to reduce excess liquidity in the economy.

This was contained in the Fund’s Post Financing and Assessment Discussion and Staff Report of Nigeria published by the fund.

According to the report, the IMF advised that a sustained monetary policy should be tightened to bring down inflation.

It stated:

“Continue withdrawing excess liquidity using short term instruments (OMOs or repos). The initial aim should be to extract the remaining 800 billion naira in excess reserves, and up to naira 2 trillion over the next 12 months.”

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CBN says currency in circulation is N3.35 trillion

Legit.ng earlier reported that data from the Central Bank of Nigeria (CBN) said the currency in circulation had spiked by 21.37% in less than three months despite the liquidity squeeze plaguing Nigerian banks.

The CBN data showed that currency in circulation increased to N3.35 trillion in November 2023, compared to N2.76 trillion recorded in September 2023, when the new governor of the CBN, Yemi Cardoso, assumed office.

The report revealed that cash outside banks rose by 27.80% to N3.08 trillion in November 2023 from N2.41 trillion in September 2023.

Source: Legit.ng