By Busola Aro

The Central Bank of Nigeria (CBN) says it has removed the discount window restrictions arising from participation in primary auctions of government securities for banks.

In a circular signed by Okey Umeano, acting director, financial markets department, on Wednesday, the CBN lifted the suspension of tenored repurchase (repo) operations, allowing it to conduct repo transactions with maturities of between four and 90 days.

Under the revised framework, restrictions on access to the discount window arising from participation in the Nigerian Foreign Exchange Market (NFEM) have been removed.

A discount window is a facility through which a central bank lends money directly to commercial banks when they need liquidity.

Repo, on the other hand, means repurchase agreement. It is essentially a short-term collateralised loan.

The development means that banks that participate in the FX market or buy government securities will no longer be automatically prevented from borrowing from the CBN’s discount window when the need liquidity.

“The CBN has adopted a differentiated approach to access restrictions on the Standing Lending  Facility (SLF)/Discount Window,” the circular reads.

“The existing restriction on participation in OMO auctions by institutions accessing the Discount Window on the same day shall remain in force.

“Foreign Exchange (FX) Transactions Restrictions on access to the Discount Window arising from participation in the  Nigerian Foreign Exchange Market (NFEM) are hereby removed.

“Government Securities Transactions Restrictions on access to the Discount Window arising from participation in the primary auctions of Government securities are hereby removed.

“Tenored Repurchase (Repo) Transactions The suspension of Tenored Repo Operations is hereby lifted.

“Accordingly, the CBN may conduct repo operations across approved tenors ranging from 4 to 90 days to support effective liquidity management, improve money market functioning and enhance monetary policy implementation.”

The apex bank also revised its OMO participation framework to allow broader participation in both primary and secondary markets.

Under the new framework, individuals, corporates, and non-bank financial institutions can participate in OMO transactions through deposit money banks (DMBs).

The regulator said the banks will continue to submit bids and settle transactions on behalf of their customers.

The CBN said the volume, tenor, and frequency of OMO issuances would continue to be determined by prevailing liquidity conditions and monetary policy objectives.

The apex bank noted that OMO auctions would continue to use the existing single-bid auction format.

The CBN added that the new provisions take effect immediately, with banks, authorised dealers, and other market participants directed to comply with the revised framework.

Source: TheCable