CBN Set To Mop Up N4.69tn As Liquidity Rises
Liquidity in Nigeria’s banking system climbed sharply to N8.84tn ahead of the settlement of the Central Bank of Nigeria’s latest Open Market Operation bills, raising expectations of a substantial cash withdrawal from the financial system.
The surge has pushed excess liquidity to more than twice the N3.82tn recorded at the beginning of the year, reflecting the combined impact of OMO maturities and other inflows into the money market.
The buildup occurred despite renewed efforts by the CBN to absorb surplus cash through the sale of government securities.
The apex bank offered N2.5tn in OMO bills across three maturities on Tuesday, with strong investor demand reportedly taking the eventual amount raised to about N5tn.
The transactions are expected to reverse part of the liquidity buildup once the securities are settled, with market participants closely monitoring the impact on short-term funding rates.
Despite the abundant liquidity, overnight borrowing costs recorded a modest increase.
Analysts said the overnight lending rate rose by 28 basis points to 20.86 per cent, while the overnight policy rate remained at 20.50 per cent.
The Nigerian Overnight Financing Rate, however, stayed at 20 per cent, which represents the lower boundary of the current interest-rate corridor following the CBN’s recent monetary policy easing.
The average Treasury bill rate also remained unchanged at 17.84 per cent, according to AIICO Capital.
AIICO Capital expects money market rates to remain close to the 20 per cent floor as long as banking-system liquidity remains above N8tn.
The investment firm, however, expects the settlement of the latest OMO transaction to significantly reduce the amount of cash available to banks.
According to the market assessment, about N4.69tn from the OMO sale is expected to be debited from the system upon settlement.
This would represent a sizeable withdrawal from the current N8.84tn liquidity pool and could alter the direction of short-term money-market rates.
The liquidity position has become an important market indicator as banks manage their cash positions amid the CBN’s ongoing use of open-market operations to regulate financial-system liquidity.
The heavy demand for OMO instruments also highlights continued appetite for high-yielding naira assets, particularly as monetary policy and short-term interest rates adjust.
