The World Bank has faulted the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) coverage, calling for changes to reinforce its effectiveness.
This was highlighted within the World Bank’s Nigeria Growth Replace, tagged “Constructing Momentum for Inclusive Development” report, revealed earlier within the week.
In response to the World Bank, there may be scope for additional enhancements in financial coverage transmission.
The report comes amid a interval of hawkish financial coverage by Nigeria’s central bank, which has maintained elevated rates of interest in a bid to curb inflation and stabilize the economic system.
This assertion stands out as a uncommon critique from the World Bank, which has principally recommended the CBN for its daring strategy to financial coverage.
What the World Bank is saying
In response to the World Bank, Nigeria’s short-term interbank charges fluctuate between the Customary Deposit Facility (SDF) and the Customary Lending Facility (SLF), relatively than aligning with the Financial Coverage Charge (MPR).
At the moment, Nigeria’s MPR stands at 27.5%, whereas banks can earn 26.5% by depositing with the CBN by means of the SDF, and are charged 32.5% when borrowing by way of the SLF.
The World Bank famous this as an indication of liquidity administration constraints, stating that interbank charges needs to be “broadly secure across the MPR.”
It additionally beneficial shortening OMO maturities and limiting participation to home buyers.
The CBN at present makes use of OMO not only for liquidity management but in addition as a overseas alternate stabilization software by exchanging OMO payments for U.S. {dollars}.
Suggestions
The World Bank reiterated that shortening OMO maturities and proscribing entry to home buyers might enhance the effectiveness of the instrument in mopping up extra naira liquidity within the brief time period.
In response to the report:
- “It might additionally assist channel longer-term lending to the personal and public sectors, and get rid of the present segmentation of the yield curve between CBN and FGN securities of the identical tenors.”
Producers in Nigeria have lengthy complained about restricted entry to credit score and the excessive value of borrowing. The report echoes these considerations and suggests reforms to enhance credit score situations.
- Moreover, the World Bank beneficial the removing of restrictions that forestall banks from accessing the SLF when engaged in different CBN transactions. It additionally suggested bringing the SLF fee nearer to the MPR to assist stabilize short-term rates of interest.
Over time, as inflation declines, the World Bank urged a reassessment of the Money Reserve Ratio (CRR) as a financial coverage software. As a substitute, it steered utilizing the CRR as a prudential software, much like practices in most international locations, to assist higher monetary intermediation and extra environment friendly useful resource allocation.
What’s subsequent?
The CBN’s Financial Coverage Committee (MPC) is scheduled to satisfy on Monday, Could 19, to deliberate on the route of financial coverage.
- The central bank has maintained the MPR at 27.5% since November 2024 and is extensively anticipated to proceed with its hawkish stance.
- The CBN has persistently cited excessive inflation as a key motive for sustaining elevated charges.
Nevertheless, regardless of these measures, the cash provide has continued to rise. As of March 2025, broad cash provide stood at N114.2 trillion, up from N92.3 trillion a 12 months earlier.
The World Bank’s report is predicted to draw the eye of the CBN forward of the coverage assembly.
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