CBN Mops Up Excess Liquidity with N2trn OMO Offer as Banks’ Idle Cash Hits N7.9trn

The Central Bank of Nigeria (CBN) has offered N2 trillion in Open Market Operations (OMO) bills to mop up excess liquidity as funds parked by lenders at its Standing Deposit Facility (SDF) climbed to N7.9 trillion.

The move comes amid concerns over weak private-sector credit, which declined by N537.6 billion in September, raising questions about monetary policy transmission to businesses.

At the OMO auction held on Thursday, the apex bank offered N2 trillion across 138-day and 180-day instruments, but subscriptions reached N2.7 trillion. It allotted N2.6 trillion, exceeding the initial offer.

Stop rates settled at 17.63% for the 138-day bills and 17.14% for the 180-day instruments, reflecting sustained investor appetite for attractive short-term returns.

The auction followed a rise in system liquidity, with net surplus increasing to N6.94 trillion from N6.28 trillion the previous week, after peaking at N8.4 trillion. The build-up was supported by about N2.1 trillion in maturing OMO bills, N392.8 billion in Treasury bills maturities and N330 billion in primary market repayments.

Consequently, banks increased placements at the CBN deposit window, showing lenders preferred holding excess cash with the apex bank rather than deploying it.

Despite the surplus, short-term funding conditions remained stable. The overnight rate eased marginally by two basis points to 20.36% from 20.38%, while the funding rate remained unchanged at 20%.

However, rates in the Nigerian Interbank Offered Rate (NIBOR) market rose across tenors. Overnight NIBOR rose 4bps to 20.29%, while one-month, three-month and six-month rates rose 45bps, 77bps and 126bps to 20.73%, 21.09% and 21.54%, respectively.

Treasury bills yields were mixed. One-month yield declined 17bps to 16.68%, while three-month and six-month yields rose 13bps and 31bps to 16.97% and 17.51%. The 12-month yield eased 11bps to 18.49%. Average market yield rose 3bps week-on-week to 17.93%.

The continued accumulation at the CBN window highlights a monetary policy challenge, as abundant liquidity does not automatically translate to increased lending.

Looking ahead, liquidity is expected to receive further support from about N130.72 billion in maturing Treasury bills and an estimated N2.13 trillion in OMO maturities, though an anticipated N800 billion Treasury bills auction could absorb part of the surplus.

Economic Confidential is a magazine published and produced by Image Merchant Promotion (IMPR) Limited, an Abuja-based Public Relations (PR) outfit with specialty in Media Relations, Crisis Communication, Social Media, Publishing, and Integrated Marketing Communication.