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By Chinwendu Obienyi
The Central Bank of Nigeria (CBN) recently reopened its Open Market Operations (OMO) market to individuals, companies and financial institutions that are not banks.
OMO is a way the CBN controls the amount of money in circulation by buying or selling government securities, such as Treasury Bills.
The move means more people and businesses can now take part in this market, marking a major change in how the CBN manages money and how investors access Nigeria’s fixed-income market.
The move reverses a restriction introduced in 2019, when access to OMO bills, among the naira market’s most liquid and attractive low-risk instruments, was largely limited to banks and selected institutional investors.
In a circular to deposit money banks, authorised dealers and the general public, the apex bank, through Acting Director, Financial Markets Department, Okey Umeano, said it had reviewed practices and recent developments in the foreign exchange, money and fixed-income markets, as well as the framework governing access to the Standing Lending Facility (SLF), tenored repo operations and participation in Open Market Operations (OMO).
Following this review, the CBN said it will relax discount window restrictions, lift the suspension on repo operations and broaden OMO participation to include non-bank financial institutions, corporates and retail investors.
According to the circular, all banks, authorised dealers and market participants are required to ensure strict compliance.
Under the revised framework, eligible retail and corporate investors can now participate in both primary and secondary OMO markets through Deposit Money Banks (DMBs).
The reform comes as the banking system navigates a sharp change in liquidity conditions and as the CBN prepares for the possibility of increased fiscal and election-related spending. It also forms part of a wider overhaul that includes the easing of restrictions on banks’ access to the SLF, the resumption of tenored repo operations and the expansion of the OMO investor base.
However, the apex bank retained one important restriction. Banks that access the discount window will not be permitted to participate in OMO auctions on the same day.
This provision appears designed to prevent institutions from using central bank liquidity to immediately increase their exposure to OMO securities and thereby limit opportunities for regulatory arbitrage.
While the measures could deepen the domestic financial market and improve the transmission of monetary policy, they also create a delicate policy trade-off.
According to industry experts, greater demand for OMO securities could compress yields, reduce banks’ treasury income and weaken the carry appeal of naira assets to foreign portfolio investors.
Hence, the CBN’s challenge will be to widen market participation without allowing the resulting yield adjustment to undermine the attractiveness of Nigerian assets or the profitability of banks’ fixed-income portfolios.
Recent data illustrate the extent to which liquidity conditions in the banking system have changed.
Banks’ use of the Standing Lending Facility fell to N3.52 trillion in July 2026, compared with N65.53 trillion in July 2025 and N75.18 trillion in July 2024.
The figure was also below the N11.16 trillion recorded in July 2023, although it remained slightly below the N5.77 trillion reported in July 2022. The SLF is designed to provide overnight liquidity to banks facing temporary funding shortages.
A decline in utilisation generally indicates that banks have less need to borrow from the CBN or are operating with greater excess liquidity. The shift is reflected in the increased use of the Standing Deposit Facility. Rather than borrowing from the CBN, banks have increasingly placed surplus liquidity with the apex bank.
SDF utilisation rose to N595.37 trillion in July 2026 from N2.32 trillion in July 2022, representing an increase of approximately 257 times. It also increased by 646 per cent from N79.85 trillion in July 2025.
On a single-day basis, SDF deposits rose 49.39 per cent to a three-month high of N6.14 trillion last week Thursday, from N4.11 trillion the previous day. The level was last matched on May 29, 2026, when SDF utilisation reached N6.10 trillion.
The reversal is particularly striking when compared with the position in July 2024. At the time, banks drew N75.18 trillion through the SLF, while only N10.35 trillion was placed in the SDF. Two years later, borrowing had declined to N3.52 trillion, while deposits had surged to N595.37 trillion.
Although the CBN had cautioned that the SDF figure represented utilisation over the period rather than a single point-in-time balance, nevertheless, the scale of the increase highlights the extent to which banks have shifted from seeking liquidity support to placing surplus funds with the apex bank.
This liquidity backdrop is important for understanding the OMO reforms. If banks and other investors already have substantial excess liquidity, broadening access to OMO securities could create strong demand for available instruments. The impact on yields will then depend on how aggressively and frequently the CBN issues OMO bills.
By allowing retail investors, corporates and non-bank financial institutions to access OMO securities through banks, the CBN is expanding the domestic investor base for short-dated naira instruments.
The policy should improve liquidity, enhance price discovery and stimulate activity in both the money and fixed-income markets.
Furthermore, it is safe to say that this move by the CBN is an aggressive liquidity-management strategy ahead of anticipated election-related fiscal spending.
Earlier in March, the CBN Governor, Olayemi Cardoso, while speaking during a Monetary Policy Committee (MPC) briefing with newsmen, said that the apex bank’s outlook indicates that the current momentum of domestic disinflation could continue in the near term.
He added that while this was premised on the lagged impact of previous monetary policy tightening, sustained stability in the foreign exchange market and improved food supply, increased fiscal releases, including election related spending, could pose upside risk to the outlook.
However, with this move, a broader investor base also means that more funds could compete for a limited volume of securities. If demand rises faster than supply, OMO clearing yields could trend lower.
Election cycles typically generate higher government and private-sector spending. If not sterilised, additional liquidity can move into the banking system and increase demand for foreign exchange, goods and financial assets. Such conditions could intensify pressure on inflation, the naira and short-term interest rates.
For banks, the move could present a potential earnings challenge. Banks typically invest surplus liquidity in government securities, OMO bills and other fixed-income instruments. The income generated from these assets can make a meaningful contribution to treasury performance, especially when lending growth is constrained or credit risks remain elevated.
Also, the prospect of yield compression is not automatic. The CBN retains full discretion over the volume, tenor and frequency of OMO issuance.
This gives the regulator considerable influence over the balance between supply and demand. If it increases issuance to match the expansion in demand, the downward pressure on yields could be contained. If issuance remains limited, competition among investors could produce a sharper decline in clearing rates.
The CBN’s control over issuance also means that the OMO reforms should not be viewed simply as a market-liberalisation exercise. They are equally an extension of the central bank’s liquidity-management toolkit.
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The regulator can use OMO sales to absorb excess funds, while the resumption of term repos allows it to inject liquidity into the system over defined maturities. Together, the instruments give the CBN greater flexibility to manage liquidity conditions in a more targeted manner.
The easing of discount window-related restrictions should also reduce funding frictions for banks.
Previously, accessing central bank liquidity could carry a significant opportunity cost if it restricted a bank’s participation in the FX market or government securities auctions. By relaxing these restrictions, the CBN is allowing banks to address temporary funding shortfalls without necessarily withdrawing from important market activities.
The reintroduction of repos with maturities of four to 90 days will also improve treasury planning. Banks will have more options for managing liquidity beyond overnight borrowing and will be able to match funding tenors more effectively with their asset positions.
Term repos could reduce volatility in money-market rates by providing more predictable funding. They could also enable the CBN to inject liquidity in a more controlled manner, rather than relying primarily on overnight facilities.
However, the operational expansion of the OMO market may create additional demands on banks. This is because DMBs will need to onboard retail and corporate clients, complete the necessary know-your-customer and compliance requirements, process bids and manage settlement arrangements.
Experts react
Chief Economist at United Capital Plc, Ayodele Akinwunmi, described the measures as an aggressive liquidity-management strategy ahead of anticipated election-related fiscal spending.
He said the CBN’s liquidity mop-up strategy was timely, particularly given the expected increase in campaign-related expenditure and the substantial expansion in broad money supply, or M3, observed in the economy.
“The CBN’s approach was preferable to an outright increase in the Monetary Policy Rate because it allows the regulator to target excess liquidity more directly without imposing a broad-based tightening of financial conditions.
An increase in the benchmark rate would affect borrowing costs across the economy, including credit to households and businesses. By contrast, OMO sales and other liquidity operations enable the CBN to absorb or inject funds with greater precision”, he explained.
Akinwunmi noted that the liquidity mop-up could initially place upward pressure on interbank money-market rates, although any subsequent moderation would likely be gradual rather than abrupt.
According to him, this would allow the CBN to retain control over system liquidity and help anchor inflation expectations without placing excessive pressure on economic activity and credit growth.
The expanded OMO market, in this context, he said, provides the central bank with an additional channel for absorbing liquidity from a broader range of investors.
Corroborating Akinwunmi, analysts at Quest Merchant Bank noted that the expanded participation ought to support liquidity, improve price discovery and enhance activity in the money and fixed-income markets.
However, they cautioned that stronger demand for OMO securities could gradually push clearing yields lower.
“Such a development could reduce the income banks earn from investing surplus liquidity in treasury and other short-dated securities. It could also moderate the attractiveness of naira carry trades, particularly for foreign portfolio investors comparing Nigerian assets with opportunities in other emerging markets,” the bank said.
Quest highlighted that the CBN will retain discretion over the volume, tenor and frequency of OMO issuances. As a result, the regulator will continue to exert significant influence over liquidity conditions and yield outcomes, allowing it to manage the pace of any potential yield compression and preserve naira’s carry appeal.
However, it warned that the CBN faces a policy trade-off. While lower yields could support market development and reduce financing costs for the government and corporations, excessive compression may weaken foreign investor demand for naira assets and narrow banks’ treasury income opportunities.
The reforms, Quest concluded, mark an important step towards a broader and more market-driven liquidity-management framework.
“Their success, however, will hinge on how the CBN balances market depth, financial stability and the continued competitiveness of naira-denominated investments for both domestic and foreign portfolio investors”, the bank said.
Also commenting, analysts at Cowry Research, said the impact of the CBN’s market reforms will depend largely on how the regulator manages OMO issuance, how quickly banks operationalise access for new investors, and how the framework interacts with the prevailing monetary policy stance.
The research firm noted that the CBN’s decision to retain full discretion over OMO volumes and tenors means that broader participation alone may not result in significant yield compression, adding that the direction of yields will depend on whether the supply of OMO securities keeps pace with the expanded investor base.
Identifying the operational rollout as a potential near-term constraint, Cowry Research said, “Although individuals, corporates and non-bank financial institutions are now eligible to participate in OMO transactions through Deposit Money Banks, banks will need to establish the necessary onboarding, documentation, bidding and settlement processes.
Delays in implementing these arrangements could limit the immediate impact of the policy change. Market participants are advised to watch for follow-up operational circulars from the CBN and further guidance from FMDQ on the mechanics of participation and settlement”, they said in an emailed note to investors.
The research firm also said the increased use of the CBN’s Discount Window and repo facilities could provide a more frequent indication of liquidity conditions in the banking system. Higher utilisation of the Standing Lending Facility could signal funding stress or tighter system liquidity, while activity in the Standing Deposit Facility could offer insight into excess liquidity conditions.
“We will monitor SLF/SDF utilisation data as it becomes available,” Cowry Research said.
The firm stressed, however, that the reforms should not be interpreted as a change in the CBN’s monetary policy stance. Rather, the measures represent an operational adjustment to the framework for managing liquidity and conducting money-market operations.
Conclusion
The CBN’s reforms are positive for the development of Nigeria’s financial markets. They broaden access, improve liquidity-management flexibility and strengthen the potential transmission of monetary policy.
But the benefits come with trade-offs. For banks, lower yields could reduce treasury income. For foreign investors, compressed yields could weaken the incentive to hold naira assets.
For the CBN, excessive liquidity or abrupt repricing could complicate efforts to manage inflation, exchange-rate stability and capital flows.
The reforms could also gradually reduce the market’s dependence on foreign investors by creating a deeper domestic demand base. That would make the market more resilient to sudden reversals in offshore flows. However, maintaining foreign participation remains important for market liquidity, price discovery and the availability of foreign exchange.
The success of the new framework will ultimately depend on implementation and sequencing. The CBN must ensure that OMO supply keeps pace with demand, banks are ready to support the expanded investor base, and liquidity operations remain consistent with the broader monetary policy stance.
