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 (OMO) bills, raising expectations of a substantial cash withdrawal from the financial system.
The latest position represents a 37.01 percent increase from N6.45tn, according to market data from AIICO Capital Limited. The surge has pushed excess liquidity to more than twice the N3.82tn recorded at the start of the year, reflecting the combined impact of OMO maturities and other inflows into the money market.
The buildup came 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 pushing bids 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. AIICO Capital estimates that about N4.69tn from the OMO sale will be debited from the system upon settlement — a sizeable withdrawal from the current N8.84tn liquidity pool that could alter the direction of money-market rates.
Despite abundant liquidity, overnight borrowing costs recorded a modest increase. The overnight lending rate rose by 28 basis points to 20.86 percent, while the policy rate remained at 20.50 percent. The Nigerian Overnight Financing Rate stayed at 20 percent, the lower boundary of the current interest-rate corridor following the CBN’s recent monetary easing. The average Treasury bill rate was unchanged at 17.84 percent, AIICO Capital said.
AIICO Capital expects money-market rates to remain close to the 20 percent floor so long as banking-system liquidity remains above N8tn, but it also expects the settlement of the latest OMO transaction to significantly reduce the cash available to banks.
The liquidity position has become an important market indicator as banks manage cash amid the CBN’s ongoing use of OMOs to regulate system liquidity. Heavy demand for OMO instruments also highlights continued appetite for high-yielding naira assets as monetary policy and short-term interest rates adjust.
