CBN Removes Discount Window Restrictions on FX, Government Securities Transactions

The Central Bank of Nigeria (CBN) has announced significant policy adjustments, removing restrictions that previously prevented financial institutions from engaging in foreign exchange (FX) and primary government securities transactions if they accessed the bank's Standing Lending Facility (SLF), also known as the discount window. These changes, effective immediately, aim to provide greater flexibility for banks and other market participants in managing their liquidity.

The CBN issued a circular detailing the revised framework, which dismantles two key restrictions associated with the discount window. Under the new rules, institutions that have accessed the CBN’s liquidity support will no longer be barred from participating in the Nigerian Foreign Exchange Market (NFEM) or primary auctions of government securities. However, a restriction remains on participating in Open Market Operations (OMO) auctions on the same day an institution accesses the discount window.

In a move to deepen liquidity management, the CBN is also reinstating tenored repurchase (repo) operations. These operations, which allow the central bank to inject or absorb liquidity against eligible securities for a set period, can now be conducted across tenors ranging from four to 90 days. This measure is expected to enhance the functioning of the money market and strengthen the implementation of monetary policy.

Furthermore, the CBN has broadened the participation in both primary and secondary Open Market Operations (OMO) markets. Eligible investors, including individuals, corporates, and non-bank financial institutions, can now access these markets through Deposit Money Banks (DMBs). The DMBs will continue to manage bids and settlements on behalf of their customers, thereby widening the investor pool for OMO transactions. These reforms collectively signal the CBN's ongoing efforts to refine its operating framework, improve financial market efficiency, and bolster the transmission of its monetary policy.