The Central Bank of Nigeria (CBN) is set to withdraw about ₦4.69 trillion from the banking system following the settlement of its latest Open Market Operation (OMO) bills, as the apex bank continues efforts to manage excess liquidity in the financial system.
The development comes after banking-system liquidity increased by 37.01 per cent to ₦8.84 trillion, from ₦6.45 trillion, according to market data from AIICO Capital Limited. The increase was linked partly to matured OMO instruments and other inflows into the money market.
The CBN had offered ₦2.5 trillion in OMO bills across three different maturities. Strong demand from investors resulted in the auction raising about ₦5 trillion, according to market reports.
The OMO instruments are part of the CBN’s monetary operations, which allow the apex bank to influence the amount of money circulating within the financial system. By selling securities, the CBN can absorb excess cash from banks and other investors.
The latest transaction comes at a time when liquidity in the Nigerian banking system has remained relatively high. The current level of ₦8.84 trillion is more than twice the ₦3.82 trillion recorded at the beginning of the year.
Despite the large amount of available liquidity, some short-term borrowing rates have moved higher. The overnight lending rate increased 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, remained at 20 per cent, the lower end of the current interest-rate corridor. The average Treasury bill rate also remained at 17.84 per cent.
The expected ₦4.69 trillion withdrawal is significant because it will reduce the amount of cash available to banks and other financial institutions. Market participants are therefore watching how the settlement will affect short-term interest rates and liquidity conditions.
The strong demand for OMO bills also demonstrates continued investor interest in naira-denominated fixed-income instruments. September has recorded particularly strong demand, with investors submitting about ₦20.58 trillion in bids across OMO auctions, compared with total offers of ₦3.9 trillion during the earlier auctions of the month.
The CBN’s liquidity-management strategy comes alongside broader monetary-policy changes. The apex bank recently reduced its Monetary Policy Rate to 23 per cent, while continuing to monitor inflation, foreign-exchange conditions and liquidity in the financial system.
For banks, the immediate focus will be on managing their cash positions following the OMO settlement. A reduction in excess liquidity could influence interbank borrowing costs and other money-market rates.
The CBN has also urged banks to use stronger balance sheets to increase productive lending to sectors such as agriculture, manufacturing, services and infrastructure. The regulator said stronger capital should be accompanied by sound risk management and quality banking services.
The latest OMO operation therefore represents another important step in the CBN’s efforts to balance liquidity management with the need to support economic activity and productive lending.
