The Central Bank of Nigeria (CBN) has barred individuals and local non-financial firms from buying high-yielding central bank bonds as it tries to boost the economy by steering lending more widely.
The two types of investors are excluded from participating in auctions for open-market operations, which are short-term central bank securities.
“We don’t want to leave room for arbitrage,” central bank spokesman Isaac Okorafor told Bloomberg. It will discourage banks from giving loans to “speculators” who want to buy government securities instead of investing in the “real economy.”
The measures are in line with a wider policy to penalize banks that don’t boost lending, according to Okorafor. The ban’s impact may be limited because it does not extend to the secondary market or foreign portfolio investors.
“The central bank has been uncomfortable with the level of demand at the OMO auctions recently and clearly they’re trying to reduce it,” said Omotola Abimbola, an analyst with Lagos-based Chapel Hill Denham Securities Ltd.
“But this measure won’t go that far because they still have access to the secondary market.”
OMOs, which typically have maturities of less than a year, were originally used by the central bank to control liquidity and mainly bought by local lenders. But they have been opened up to others in the past two years and have become the main instrument for foreign carry traders.
