The Central Bank of Nigeria (CBN) successfully raised ₦1.4 trillion from the sale of Open Market Operation (OMO) bills at an auction held on Thursday. The auction saw a huge demand from both local banks and foreign investors, who were eager to invest in these financial instruments due to the high returns offered on naira assets......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Why Investors Are Interested in OMO Bills
OMO bills are short-term financial instruments used by the CBN to control liquidity (the amount of money circulating in the economy). By selling these bills, the central bank reduces the money supply, helping to manage inflation. Investors, particularly banks and foreign portfolio investors, find these instruments attractive because of their high-interest rates.
Recently, the demand for money market instruments like OMO bills has been increasing because of the higher returns they offer compared to other investment options. This is happening at a time when Nigeria’s inflation rate is soaring, making investors look for ways to earn better yields on their funds.
Inflation and CBN’s Response
To combat rising inflation, the CBN has been tightening monetary policy, meaning it has been increasing interest rates to slow down inflation. However, despite these efforts, inflation has continued to rise. As of December 2024, Nigeria’s inflation rate hit 34.8%, making it harder for people to afford basic goods and services.
Strong Demand for OMO Bills at Auction
At the latest OMO auction, investors were eager to buy, leading to a demand that was three times higher than the amount initially offered by the CBN.
The CBN initially planned to sell ₦600 billion worth of OMO bills.
However, investors placed total bids worth ₦1.92 trillion, showing a strong appetite for these securities.
Eventually, the CBN decided to sell ₦1.4 trillion instead of the initial ₦600 billion target.
The interest rates (stop rates) on these OMO bills were also high:
355-day OMO bill: 21.32%
362-day OMO bill: 21.45%
This means that investors who bought these bills will earn over 21% in returns after holding them for nearly a year.