CBN Lifts Restrictions on Banks’ Access to FX, Govt. Securities at DW
The Central Bank of Nigeria (CBN) has lifted its previous restrictions on access to foreign exchange and government securities at the discount window (DW), effective immediately.
The regulatory decision means that banks that participate in the FX market or buy government securities will no longer be automatically prevented from borrowing from the discount window to access liquidity.
Under the new framework that will guide Nigerian lenders’ FX and money market activities, the Bank disclosed that it reviewed existing market practices and developments in the foreign exchange, money, and fixed-income markets.
Referring to financial institutions, the CBN said it lifted restrictions on access to the Discount Window for participants in the Nigerian Foreign Exchange Market (NFEM) and those involved in primary auctions of government securities.
While these restrictions have been lifted, the CBN reaffirmed its stance on current limitations for institutions accessing the Discount Window on the same day.
The Bank has also revised the framework governing access to the Standing Lending Facility (SLF), Tenored Repo Operations, and participation in Open Market Operations (OMO).
The CBN has reinstated Tenored Repo Operations, allowing repo operations across approved tenors of 4 to 90 days to manage liquidity effectively, improve money market operations, and enhance the implementation of monetary policy.
The circular indicates that OMO participation in both primary and secondary markets will be open to all eligible investors through Deposit Money Banks (DMBs).
Eligible investors include individuals, corporates, and non-bank financial institutions, with DMBs continuing to handle bids and transaction settlements on their behalf.
The CBN stated that the volume, tenor, and frequency of OMO issuances will be guided by prevailing liquidity conditions and monetary policy objectives, and auctions will continue to utilise the existing single-bid auction format.
Impact Analysis -MarketForces Africa
Removing access restrictions for banks at the Central Bank of Nigeria’s Discount Window generally means banks can more freely access liquidity support from the CBN when needed.
Market analysts said this will enhance banks’ ability to manage short-term liquidity needs efficiently. It will also promote stability in the banking sector by providing a reliable source of funds during periods of cash flow challenges.
The regulator’s decision to create access to liquidity will encourage smoother functioning of the financial system by ensuring that banks have timely access to central bank funds.
This is expected to reduce the risk of systemic shocks from liquidity shortages. Yield on Nigerian Treasury Bills Dips Ahead of Auction, Inflation
