CBN eases FX, bond restrictions on discount window, keeps OMO guardrail
The Central Bank of Nigeria (CBN) has continued its financial market reforms, many of which are already showing results across the foreign exchange and money markets.
Recent reforms by the CBN
Over the past year, the CBN has introduced a number of changes. In the FX market, it launched the B-Match trading platform in 2024 and introduced the FX Code of Conduct to improve transparency. It also restructured the Bureau De Change (BDC) segment, removing rent-seeking operators and approving 82 new BDCs. These BDCs are now part of the official Nigerian Foreign Exchange Market (NFEM), meaning they can buy dollars from banks and sell to customers in the retail market.
The apex bank has also made changes to financial holding company structures, increased the minimum capital requirement for banks to N500 billion, and introduced a new benchmark rate, the Nigeria Financing Overnight Rate (NOFR), to guide short-term lending in the market. Taken together, these reforms are aimed at improving transparency, strengthening stability and boosting investor confidence.
How the previous rules worked
The latest reform focuses on how banks access the CBN’s discount window, also known as the Standing Lending Facility (SLF). In simple terms, this is the window banks turn to when they need to borrow money from the CBN to meet short-term liquidity needs.
Before now, the CBN placed a number of restrictions on banks. If a bank had just participated in certain market activities, it was not allowed to immediately go back to the CBN to borrow money. The logic was straightforward, banks should not rely on the central bank to fund transactions they had just undertaken.
For instance, if a bank successfully participated in an Open Market Operations (OMO) auction, it was not allowed to access the discount window on the same day. Similar restrictions applied when banks participated in government securities auctions such as Treasury bills, FGN bonds and Sukuk. In addition, banks that had accessed the CBN’s discount window were not allowed to turn around and purchase foreign exchange from the CBN during its market interventions.
What has changed
The new circular relaxes some of these rules. Banks can now participate in government securities auctions and still access the discount window if they need liquidity. The circular also removes the restriction on foreign exchange transactions. Banks can now participate in the CBN’s FX interventions or purchase foreign exchange directly from the CBN, even after accessing the discount window. In practical terms, this means banks now have more flexibility to manage their funding, even after participating in these markets.
CBN keeps OMO guardrail
However, the CBN did not remove all restrictions. The rule on OMO remains in place. A bank that successfully participates in an OMO auction is still not permitted to borrow from the CBN on the same day. This is because OMO is used to take money out of the financial system. Allowing banks to immediately borrow back that same money would defeat the purpose of the policy.
OMO now opens to more participants
Another important change is that participation in OMO has now been expanded.
Previously, OMO instruments were largely restricted to foreign investors. Now, individuals, corporates and non-bank financial institutions can also participate through authorised dealers. In simple terms, this means more people and institutions can invest in OMO bills.
This is expected to deepen the market and improve liquidity. With more participants, demand for OMO bills could increase, which may influence yields over time. At the last auction, OMO bills were priced slightly above 20 percent.
Repo transaction is back
The CBN also announced the return of repo transactions. A repo is essentially a short-term borrowing arrangement where a bank can use government securities such as Treasury bills or bonds as collateral to obtain cash from the CBN. The bank later repays the cash with interest and receives its securities back. Under the new framework, these transactions can run for between four and 90 days.
This provides banks with an additional funding option, alongside the discount window and interbank borrowing, and allows them to manage liquidity in a more structured way.
When all these changes are put together, the direction is clear. The CBN is giving banks more flexibility in how they manage liquidity, while still maintaining discipline in key areas of monetary policy.
In essence, the central bank is trying to strike a balance, allowing banks to operate more freely, but still ensuring that its policy tools remain effective and are not undermined.
