The Central Bank of Nigeria’s (CBN) latest changes to Open Market Operations (OMO) and repurchase transactions may be doing more than simply improving access to the fixed-income market.
The review could give the apex bank a more flexible liquidity-management toolkit ahead of a period when global economic risks and Nigeria’s 2027 election cycle could put additional pressure on the money supply, inflation, and the naira.
In a circular on August 12, the CBN announced the removal of some restrictions on access to its Standing Lending Facility (SLF) arising from foreign exchange and government securities transactions, while lifting the suspension of tenored repo operations.
It also opened OMO participation in both the primary and secondary markets to all eligible investors through deposit money banks, including individuals, corporates and non-bank financial institutions.
The apex bank said the volume, tenor and frequency of OMO issuance would continue to depend on prevailing liquidity conditions and its monetary policy objectives.
The changes have raised an important question for the financial system on whether the CBN is simply returning the market to a more conventional monetary policy framework, or is it quietly preparing for potentially higher liquidity conditions as Nigeria approaches the 2027 elections?
CBN Rebuilds Its Liquidity-Management Toolkit
For Dr Kazeem Bello, global financial analyst and principal manager/CEO of Afrique Capital and Equity Funds Limited, the answer points towards the latter.
He described OMO and repo operations as conventional tools used by central banks to fine-tune monetary policy, explaining that the CBN’s latest decisions were part of a broader effort to prepare the economy for possible global and domestic shocks.
“The CBN has been instructive in recent times in the efforts to shape fluidity in the monetary policy initiatives to create stability, liquidity, stable currency and stabilise the foreign exchange market,” Bello told Pinnacle Daily.
He argued that the reopening of OMO and expansion of repo operations could become particularly important if global economic conditions deteriorate.
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According to him, economists have projected a possible global recession from late 2026 into the second quarter of 2027, with energy-market disruptions among the factors that could drive the downturn.
Bello believes the CBN therefore needs the ability to inject liquidity quickly if external shocks begin to affect Nigeria.
“With this potential problem emanating within the global economic horizons, and coupled with the election period in Nigeria, it is simply necessary for the CBN to embark upon expansionary monetary policy strategies to assist in limiting the impact of this global interplay and potential domestic money supply mechanisms affecting the Nigerian economy,” he said.
His assessment puts the CBN’s latest reforms in a different light, that is, rather than simply making OMO more attractive to investors, the changes could give the central bank greater flexibility to respond to changing liquidity conditions.
The lifting of the suspension on tenored repos is particularly significant in this regard, as under the new framework, the CBN can conduct repo operations across approved tenors of between four and 90 days to support liquidity management, improve money-market functioning and strengthen monetary policy implementation.
Repos give the CBN another channel through which it can respond to short-term liquidity pressures without relying exclusively on OMO issuance.
Bello said the flexibility would become important if liquidity conditions deteriorate sharply.
“Repos are essentially useful in creating market dynamism, and it allows the country’s monetary policy initiatives to quickly react to any unpleasant or undesirable shock, as we witnessed during the global meltdown as a result of the Covid 19 pandemic,” he said.
But the reforms also create a policy dilemma, particularly as Nigeria moves towards an election year.
Bello warned that expansionary monetary policy could become difficult to manage if it coincides with aggressive fiscal spending. He pointed to rising FAAC distributions and the possibility of increased government spending around the election period as potential sources of excess liquidity.
“With the election season arriving in Nigeria and the potential for massive fiscal policy disruption in terms of seemingly reckless spending, this may unavoidably destabilise the CBN’s current laudable initiatives,” he said.
He argued that monetary expansion would need to be matched by fiscal restraint to prevent excess money supply from undermining the CBN’s efforts to control inflation.
“When you embark upon the nature of expansionary monetary policy strategies being foisted by the CBN, there must be an equivalent attempt to introduce a restrictive fiscal policy expansion,” Bello said.
From Market Normalisation to Election-Year Liquidity Risks
This is where the latest CBN circular could become more important than its immediate impact on OMO participation. By giving the central bank more options to manage liquidity, the reforms may be preparing the monetary authority for a financial environment in which liquidity could move sharply in either direction.
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Chuka Uwachuku, chief dealer and group head, trading at UBA, however, sees the changes primarily as an effort to make the financial markets more accessible and liquid.
He said OMO had previously been highly restricted, but the new framework allows a wider range of investors to participate.
“What has happened now is that OMO is now open for everyone,” Uwachuku said, adding that individuals, corporates and other investors would now have greater access to the market.
He expects the broader participation to increase demand for OMO bills, particularly because OMO rates have historically been more attractive than Treasury bill rates.
“Most times you see OMO rate trading about two, 300, 400 basis points above the NTB range, and so with this new policy, most participants or most demand will shift from the NTB to the OMO side,” he said.
Uwachuku also pointed to the size of liquidity currently available in the financial system as another reason the changes could deepen market activity.
“We’ve seen liquidity around 6.5 trillion. That obviously will also help give options to market players,” he said.
From this perspective, the CBN is not necessarily signalling a deliberate shift towards permanently loose monetary policy. Instead, it is broadening the channels through which liquidity can move and allowing more participants to respond to available investment opportunities.
Caleb Alimi, chief dealer at ProvidusUnity Bank, similarly sees the reforms as a return to more established monetary policy practices rather than an entirely new policy direction.
He noted that OMO participation was previously available to individuals and other investors before restrictions were introduced.
“What I see here is a return to a monetary practice, a monetary policy practice that we had, say, some eight years ago,” Alimi said.
He said the CBN’s reopening of OMO, tenored repos and broader access to its lending facilities suggests that the market is being restored to a more conventional operating framework after recent improvements in economic stability.
“So what they’re just doing is they are returning to best monetary policy practices. They’re restoring the market to normal,” Alimi said.
The three views point to an important distinction that the CBN may not necessarily be preparing for an election-driven liquidity expansion, but it is rebuilding the tools that would allow it to manage one if it occurs.
The circular itself gives the central bank considerable discretion, stating that OMO volumes, tenors, and frequency will be determined by prevailing liquidity conditions and monetary policy objectives.
This means the expansion of access does not automatically translate into an expansion of money supply, as the CBN retains control over how frequently it issues OMO bills and the amount and tenor of those instruments.
That flexibility could prove critical as the 2027 elections approach, as higher government spending could increase liquidity, while global economic shocks could require the CBN to provide liquidity to prevent financial-market stress. At the same time, excessive liquidity could complicate the fight against inflation.
Bello therefore sees the monetary reforms as only one side of the equation. He said, “I believe the target of the CBN is to ensure that Nigeria escapes any global economic impact as a result of all the challenges the global economy is currently confronted with.”
But he warned that the central bank’s efforts could be undermined if fiscal policy moves in the opposite direction.
“If this does not happen, Nigerians should expect that inflation will spike in and around the first quarter of 2027, lasting for another 18 months, thereby posing another challenge to the CBN’s efforts,” Bello said.
The immediate impact of the reforms may therefore be greater market participation, improved liquidity management and a wider range of instruments for investors and financial institutions. The bigger test, however, will be whether the CBN can use this expanded toolkit to manage the competing pressures that could emerge as Nigeria enters the 2027 election cycle.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X