The Central Bank of Nigeria (CBN) is preparing to withdraw about ₦4.69 trillion from the banking system following a sharp increase in financial-system liquidity.
According to market data from AIICO Capital, banking-system liquidity rose to ₦8.84 trillion, representing a 37.01 per cent increase from ₦6.45 trillion. The increase was attributed largely to Open Market Operation (OMO) maturities and other inflows into the money market.
The CBN had offered ₦2.5 trillion in OMO bills across three maturities on September 29. However, strong investor demand resulted in about ₦4.69 trillion being allotted. Investors submitted bids worth approximately ₦6.4 trillion, significantly exceeding the initial amount offered by the apex bank.
The latest operation means the CBN will absorb a substantial amount of naira liquidity when the securities are settled. Analysts expect the withdrawal to reduce the amount of cash available to banks and could influence short-term money-market rates.
The liquidity build-up has occurred despite the CBN’s continued use of OMO auctions to manage excess cash in the financial system. Selling OMO bills allows the apex bank to absorb funds from banks and investors while providing interest-bearing securities in return.
The latest figures also show continued strong demand for CBN securities. September’s OMO auctions have attracted significant investor interest, with investors submitting more than ₦20 trillion in bids across earlier September auctions.
Meanwhile, the CBN recently reduced the Monetary Policy Rate (MPR) to 23 per cent at its September 21–22 Monetary Policy Committee meeting. The bank also retained the Cash Reserve Requirement for deposit money banks at 45 per cent.
Despite the large liquidity position, the overnight lending rate increased slightly to 20.86 per cent, while the Nigerian Overnight Financing Rate remained at 20 per cent.
Market participants will now watch the settlement of the latest OMO transaction closely to see how the ₦4.69 trillion withdrawal affects liquidity, short-term interest rates and banks’ funding positions.
The CBN’s liquidity-management operations remain an important part of its monetary-policy framework as it seeks to influence financial conditions while maintaining stability in the banking system.
