The International Monetary Fund (IMF) has advised the Central Bank of Nigeria (CBN) to mop up excess liquidity in the nation’s economy through the issuance of OMO bills of up to N2 trillion in the next 12 months as a strategic step towards thawing rising inflation rate of the country.
The development finance institution gave the advice in its just published ‘Post Financing and Assessment Discussion and Staff Report of Nigeria’.
In addition to the debt instrument issuance, the Fund advised the apex bank on the need for sustained hawkish monetary policy in order to slow down the general rising price level in the economy.
The Fund stated: “Continue withdrawing excess liquidity using short term instruments (OMOs or repos). The initial aim should be to extract the remaining 800 billion naira in excess reserves, and up to naira 2 trillion over the next 12 months.”
The multilateral development finance institution maintained that Nigeria could meet her debt obligation requirements in spite of some current risks, listing such risk as including rising inflation triggered by the sustained depreciation of the Naira and climate shock, all of which have potential to further weaken the payment indicators.
Despite the risks, it also estimated that while inflation might slow in the first quarter of 2024, reaching about 17% by the year’s end, the nation’s food inflation rate would remain high going for the most part of the year due to the depreciation of the national currency.
This is even as it projected that “by end 2024, inflation should gradually return to historical levels (17 percent year-on-year at end-2024), helped by base effects phasing out and assuming monetary policy tightening.”
Barely three months of the resumption of office by the current CBN Governor, Dr. Olayemi Cardoso, the currency in circulation surged by N890 billion to N3.65 trillion as of the end of December 2023, representing a 32% increase.
The apex bank linked the excess cash in circulation to the surging inflation in the economy and had been, through OMO bill issuance and other debt instruments, including Treasury Bills’ offering, trying to mop out excess cash liquidity in the economy.
The latest data on the last OMO bills’ issuance by the CBN indicated that it was oversubscribed by N157 billion for the 363-day bills with the stop rate at 17.75%.
