Declining Inflation and Its Impact on OMO Sales
The Central Bank of Nigeria (CBN) has significantly increased Open Market Operations (OMO) in the past year, but a decline is now expected as inflationary pressures ease. In 2024, OMO bill sales surged to N11.8 trillion, reflecting a 1,773.7 percent increase from N627.2 billion in 2023, according to CBN data.
So far in 2025, the CBN has auctioned N1.9 trillion worth of OMO bills while repaying N744.8 billion. The aggressive approach aimed to manage liquidity and curb inflation. However, financial analysts predict a slowdown in these operations due to a recent decline in inflationary trends.
The Role of Inflation in OMO Activities
Ayokunle Olubunmi, head of financial institution ratings at Agusto & Co, noted that the CBN’s contractionary stance led to increased OMO activities. He expects a decline in OMO sales as inflation slows, largely influenced by the rebased Consumer Price Index (CPI).
Last week, the National Bureau of Statistics (NBS) rebased the CPI, reducing Nigeria’s headline inflation to 24.5 percent in January 2025 from the previous 34.8 percent in December 2024. This shift indicates a significant moderation in inflationary pressures.
Liquidity Control and Exchange Rate Stability
Analysts warn that excessive liquidity fuels inflation, weakening the naira’s purchasing power. By selling OMO bills, the CBN absorbs surplus naira, thereby reducing inflation and stabilizing the exchange rate.
According to Ayodele Akinwunmi, a senior relationship manager at FSDH Merchant Bank, OMO is a critical tool for controlling liquidity in the financial system. The CBN actively deployed this measure in 2024 to manage inflation and attract foreign investment through foreign portfolio inflows.
Money Supply Trends Despite OMO Sales
Despite the increased liquidity mop-up, Nigeria’s broad money supply (M3) hit N110.98 trillion in January 2025, marking a 1.85 percent rise from N108.96 trillion in November 2024. Additionally, currency in circulation reached a record N5.23 trillion, reflecting a 7.4 percent increase compared to November 2024.
CBN’s Future Policy Considerations
With inflation slowing, Agusto & Co analysts suggest that the CBN may adjust liquidity management by easing restrictions. This could boost lending and investment, essential for Nigeria’s economic recovery. However, the CBN must act cautiously, as prematurely relaxing monetary policies might reignite inflation, especially if supply-side challenges persist.
“A balanced approach is required, weighing the benefits of easing liquidity against the risk of fueling inflation to ensure sustainable economic growth,” the analysts advised.
