CBN bars individuals, local corporates from OMO Auctions in Nigerian markets
The Central Bank of Nigeria (CBN) issued a directive barring individuals and local corporates from investing in Open Market Operations (OMO) auctions. To discuss how this directive will impact the money markets going forward, Femi Ogundimu, Fixed Income Dealer at Access Bank joins CNBC Africa.
Fri, 25 Oct 2019 12:32:52 GMT
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AI Generated Summary
- The CBN directive bars individuals and local corporates from participating in OMO auctions, limiting participation to banks and international investors.
- The exclusion of certain investors may lead to a shift towards the bond market as investors seek alternative opportunities, potentially impacting yields in the short term.
- Foreign investment participation in Nigerian markets could be influenced by the new directive, with implications for market liquidity and investor preferences.
The Central Bank of Nigeria (CBN) recently issued a directive that bars individuals and local corporates, including non-bank financial institutions (NBFIs), from participating in Open Market Operations (OMO) auctions. This move restricts the participation in OMO auctions to only banks and international investors. To discuss the impact of this directive on the money markets, Femi Ogundimu, a Fixed Income Dealer at Access Bank, shared insights in an interview with CNBC Africa. The directive, which took effect on the 23rd of October, marks a significant shift in the market dynamics. With the exclusion of individual and local corporate investors, the treasury market may experience a shift as these players look for alternative investment opportunities. One area that could potentially see increased activity is the bond market due to its long-term nature. If investors move to the bond market, it could lead to a decline in yields in the short term. Meanwhile, the Primary Market Auction (PMA) may experience increased interest, but with yields currently at low levels, the impact on this market remains uncertain. The exclusion of individual and local corporate investors from OMO auctions raises concerns about the impact on foreign investment participation in Nigerian markets. Foreign investors may potentially see the directive as an opportunity for arbitrage, as they can participate in the auctions and subsequently sell to other market players. However, the restriction contradicts the idea of a free and open market, which may not align with the preferences of foreign investors looking for liquidity. The CBN's objective behind the directive is aimed at improving lending to the real sector and preventing diversion of funds from critical areas. By limiting the participation in OMO auctions, the CBN aims to plug loopholes and ensure greater accountability in the system. While the long-term implications of this directive are yet to be fully understood, there is a possibility that the market may become shallower in the short term due to the absence of certain players. Market players have reacted swiftly to the directive, leading to fluctuations in the treasury and bond markets. Yields have seen a decline, and there has been increased selling activity as investors navigate the new landscape. It remains to be seen whether these initial reactions will stabilize or if further shifts are on the horizon. Looking ahead to the next week, market participants are expected to adopt a cautious approach. The impact of the exclusion of NBFI's and local corporates is likely to continue influencing market dynamics. In the T-bills market, the absence of these players may lead to a quieter market environment. On the other hand, the bond market could witness more buying interest as investors seek higher yields. As the market adjusts to the new directive, it is expected that activity levels will normalize over time. The coming days will provide more clarity on how market participants adapt to the changing landscape and whether new strategies emerge.