The Central Bank of Nigeria (CBN) has introduced a series of changes to its money-market framework, giving banks greater flexibility to manage liquidity while expanding access to Open Market Operations (OMO) instruments.
Under the new rules, banks will no longer lose access to the CBN’s Standing Lending Facility (SLF), also known as the Discount Window, simply because they have participated in foreign exchange transactions or primary auctions of government securities.
The changes are part of a broader review of the rules governing the Discount Window, Tenored Repo Operations and OMO participation, with the central bank seeking to improve the functioning of financial markets and strengthen the transmission of monetary policy.
In a circular signed by Okey Umeano, acting director of the CBN’s Financial Markets Department, the apex bank said it had removed restrictions on Discount Window access linked to participation in the Nigerian Foreign Exchange Market (NFEM).
Restrictions arising from participation in primary auctions of government securities have also been removed.
The new arrangement means banks can participate in the FX market and purchase government securities at primary auctions without those activities preventing them from accessing the CBN’s liquidity facility.
OMO restriction remains
The central bank, however, retained one existing restriction.
Institutions that access the Discount Window will continue to be barred from participating in OMO auctions on the same day.
The Discount Window serves as an important source of short-term liquidity for eligible financial institutions facing temporary funding pressures. By removing the restrictions associated with foreign exchange and primary government securities transactions, the CBN is giving banks more room to manage their liquidity across different parts of the financial system.
Umeano said the decision followed the Bank’s assessment of developments and prevailing practices in the foreign exchange, money and fixed-income markets.
“The CBN has reviewed existing market practices and developments in the foreign exchange, money, and fixed-income markets,” he said.
He added that the Bank had also reviewed the framework governing access to the Standing Lending Facility, Tenored Repo Operations and participation in Open Market Operations.
“Accordingly, and further to” previous circulars governing access to the Discount Window and OMO auctions, the CBN issued the revised directives with immediate effect, Umeano said.
CBN opens OMO market to wider investor base
The central bank has also significantly widened the framework for participating in OMO transactions.
Both primary and secondary market participation will now be open to all eligible investors through Deposit Money Banks (DMBs).
The eligible investor base includes individuals, corporate entities and non-bank financial institutions. DMBs will continue to submit bids and settle transactions on behalf of their customers.
The revised framework effectively allows a broader range of investors to gain exposure to OMO instruments through their banks, moving beyond the more limited participation structure previously in place.
The CBN said it would continue to determine the volume, tenor and frequency of OMO issuances according to prevailing liquidity conditions and its monetary policy objectives.
OMO auctions will continue to use the existing single-bid auction format.
Tenored repo operations return
In another significant change, the CBN has lifted the suspension of Tenored Repo Operations.
The Bank can now conduct repo operations across approved tenors ranging from four days to 90 days, providing another mechanism for managing liquidity within the banking system.
Repo transactions allow the central bank to inject or absorb liquidity for specified periods, giving policymakers greater flexibility in responding to developments in the money market.
The restoration of the facility could become particularly important as the CBN seeks to fine-tune liquidity conditions without relying exclusively on other monetary policy instruments.
According to Umeano, the repo framework is intended to “support effective liquidity management, improve money market functioning and enhance monetary policy implementation.”
New rules take immediate effect
The latest measures represent a broader effort by the CBN to make the Nigerian financial market more flexible while improving the effectiveness of its monetary policy operations.
Removing the link between participation in FX transactions or primary government securities auctions and access to the Discount Window could also allow banks to manage competing liquidity requirements with fewer operational constraints.
At the same time, broader OMO participation could deepen the market for central bank securities and provide more investors with access to monetary policy instruments.
The CBN said all provisions of the new circular take immediate effect and directed banks, authorised dealers and other market participants to comply strictly with the revised framework.