What to make of the new OMO market, By Uddin Ifeanyi
Against the backdrop provided by the OMO stop rate and the rate on the 91-day treasury bill, the OMO reopening effectively creates a new market benchmark that shifts the question on bank performance from whether Nigerian banks are paying enough on savings accounts, to how much of the return they earn on risk-free CBN securities Nigerian banks are willing to share with their depositors.
The second question matters even more, in the sense that if OMO yields remain elevated and banks continue paying 8% on savings deposits while offering only modestly higher rates on term deposits, it could be argued that the banking system is benefiting from considerable deposit-market power.) Up until now, banks have opted to reward savings deposits at the minimum rate of 30 per cent of the monetary policy rate (MPR) specified by the CBN’s “Guide to Charges”.
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