OMO Policy Falls Short as World Bank Flags N21.9trn Surge in Money Supply
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Samuel Mobolaji
The World Bank has raised concerns over the effectiveness of the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) policy, citing its limited impact on curbing excess liquidity despite sustained monetary tightening.
The criticism, contained in its latest Nigeria Development Update titled “Building Momentum for Inclusive Growth,” calls for urgent reforms to improve monetary policy transmission.
According to the report, short-term interbank interest rates in Nigeria continue to fluctuate between the Standard Deposit Facility (SDF) and Standard Lending Facility (SLF) rather than aligning with the 27.5 per cent Monetary Policy Rate (MPR), signalling liquidity management inefficiencies. With banks earning 26.5 per cent on deposits through the SDF and paying 32.5 per cent to borrow via the SLF, the World Bank described this pattern as a deviation from expected monetary stability.
The global lender recommended a shift in strategy—specifically, shortening the maturity period of OMO instruments and restricting participation to domestic investors.
It also criticised the CBN’s practice of using OMO bills as a foreign exchange stabilisation tool, warning that this approach creates a segmentation in the yield curve between CBN and Federal Government securities of the same tenor.
As manufacturers continue to decry limited access to credit and rising borrowing costs, the World Bank echoed these concerns and urged reforms to foster more efficient financial intermediation. Among the suggestions were easing restrictions that limit banks’ access to the SLF and aligning the SLF rate more closely with the MPR.
The report further advised a re-evaluation of the Cash Reserve Ratio (CRR)—currently used as a core monetary tool—and its eventual transition to a prudential function as inflation moderates. This, it noted, would improve resource allocation and enhance private sector lending.
Despite the CBN’s hawkish stance, broad money supply has risen sharply by N21.9 trillion year-on-year, from N92.3 trillion in March 2024 to N114.2 trillion by March 2025.
The central bank’s Monetary Policy Committee is scheduled to meet on May 19, where the effectiveness of current tools, including OMO, is expected to be closely scrutinised in light of the World Bank’s recommendations.
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