The Central Bank of Nigeria has been recommended by the International Monetary Fund (IMF) to increase its OMO bill by up to N2 trillion over the course of the next year in order to absorb excess liquidity in the economy and control inflation.
The Fund’s Post Financing and Assessment Discussion and Staff Report of Nigeria, which was released by the fund, included these information.
The study states that in order to reduce inflation, the IMF recommended a consistent tightening of monetary policy.
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.”
The advice from the IMF comes on the heels of the CBN recording an oversubscription of N2.3 trillion for its N1 trillion treasury bills offer.
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The 364 days treasury bills saw an oversubscription of N1.8 trillion with investors bidding between 13% and 29.9% interest rates.
Furthermore, the IMF noted that Nigeria can meet its debt obligation requirements even though some risk persists. Specifically, it mentioned that such risk includes inflation triggered depreciation of the naira or a climate shock all have potentials to weaken the payment indicators.
However, the fund also estimated that while inflation might slow in the first quarter of 2024, reaching about 17% by the year’s end.
However, food inflation will remain high going for the most part of the year till the last quarter with the depreciation of the naira primed as the major cause.
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It stated, “By end 2024, inflation should gradually return to historical levels (17 percent year-on-year at end-2024), helped by base effects phasing out and assuming monetary policy tightening.”
In the first three months upon resumption of the leadership of the apex bank, the currency in circulation rose by N890 billion to N3.65 trillion as of December 2023 representing a 32% rise.
The CBN had attributed the excess cash in circulation to be one of the factors fuelling the increased inflation.
To mop out excess cash liquidity in the economy, the apex bank sometimes deploys issuance of OMO bills.
The CBN’s last OMO bills issuance was oversubscribed by N157 billion for the 363-day bills with the stop rate at 17.75%
