Several analysts are of the opinion, that the Central Bank of Nigeria (CBN) could mop up N230 billion of OMO operations that are due to mature this week. N62 billion worth of treasury bills would mature this week, but the apex bank has decided to roll them over. This simply means fresh treasury bills worth the same amount will be issued. Open Market operations (OMO) worth N168.1 billion will also mature this week.
An Open Market Operation (OMO) is an operation by a central bank to mop up liquidity from a group of banks.
So why the mop up?
The CBN is embarking on this to manage the level of liquidity in the sytem. The apex bank believes that leaving liquidity (funds) in the hands of the bank will lead to speculation in the foreign exchange market. A drop in crude oil price and production volumes last year led to a foreign exchange crisis and tight fx policy by the apex bank.
How does this affect banks?
if the CBN decides to mop up the funds, it could lead to an increase in inter-bank rates. Inter-bank rates are the interest rates on short term loans between banks. Inter -bank rates to an extent affect the rates banks charge their customers, so if the inter -bank rates remain high, interest rate to the public will also remain elevated. The continued fund raise by the CBN and thus indirectly the Federal Government has left the private sector crowded out of the market, and having to borrow at high interest rates.