Nigeria’s banking system liquidity increased by N1.13 trillion in one week to N8.505 trillion, despite efforts by the Central Bank of Nigeria (CBN) to mop up excess cash through Open Market Operations (OMO), highlighting the challenge of managing rising liquidity in the financial system.
System liquidity rose by 15.36 percent week-on-week from N7.373 trillion recorded in the previous week, even as the apex bank raised N5.667 trillion through two OMO auctions conducted on November 3 and 6, according to the Financial Markets Dealers Association (FMDA) weekly market report released on Monday.
The latest liquidity increase comes as the CBN intensifies its monetary operations to absorb surplus funds from the banking system, with its November OMO interventions already accounting for 91.7 percent of the N6.182 trillion raised throughout October.
The scale of the intervention underscores the growing importance of liquidity management in the financial system, as substantial inflows continue to offset efforts to withdraw excess naira balances.
The CBN’s OMO operations involve selling securities to financial institutions to absorb excess liquidity, thereby helping to manage money supply and influence short-term interest rates.
However, the latest figures suggest that liquidity conditions remain elevated despite the central bank’s aggressive withdrawal of funds.
The Debt Management Office (DMO) also maintained a restrictive approach at its November 4 Treasury bills auction, rejecting approximately 75.1 percent of the N2.045 trillion bids received from investors.
The debt office allotted only N509.401 billion against an initial offer of N800 billion, indicating its preference for limiting the volume of funds raised despite strong investor demand.
The development comes as the financial system prepares for another substantial liquidity injection this week, with estimated inflows projected at N2.448 trillion.
According to the FMDA report, N2.298 trillion of the expected inflows will come from maturing OMO instruments, while N148.565 billion will be from Treasury bills maturities.
The anticipated inflows could sustain liquidity pressures in the banking system, potentially requiring further intervention by the CBN to prevent excess cash from undermining its monetary policy objectives.
The DMO is scheduled to return to the primary Treasury bills market on November 11 with an N800 billion offer, comprising N100 billion in 91-day bills, N100 billion in 182-day bills and N600 billion in 364-day instruments. Settlement is expected on November 12.
The auction will provide another opportunity for the government to absorb funds from the financial system, although its impact will depend on investor demand and the amount ultimately allotted.
Meanwhile, movements in the fixed-income market reflected differing investor positioning across short-term and longer-dated government securities.
Average Treasury bill yields declined by 35 basis points to 17.67 percent during the review week, from 18.02 percent previously.
The six-month Treasury bills yield recorded the largest decline, falling by 71 basis points to 17.51 percent, while the three-month instrument dropped by 57 basis points to 17.26 percent. The nine-month tenor also declined by 49 basis points to 18.23 percent.
However, the 12-month Treasury bills yield increased marginally by six basis points to 18.40 percent.
In contrast, average Federal Government bond yields increased by 20 basis points to 16.37 percent, driven largely by a 104-basis-point increase in the seven-year instrument to 17.77 percent.
The divergence between Treasury bills and bond yields suggests that investors are responding differently to supply, liquidity, and return expectations across the fixed-income market.
Beyond the domestic liquidity position, the country’s external reserves declined marginally by 0.16 percent week-on-week to $55.133 billion, while the naira recorded mixed movements across the foreign exchange market.
At the Nigerian Foreign Exchange Market, the naira appreciated by 0.34 percent to N1,347.64 per dollar, while it depreciated by 1.38 percent to N1,410.60 at the parallel market, widening the gap between both rates to N62.96.
The combination of rising system liquidity, substantial OMO interventions, and divergent fixed-income yields highlights the balancing act facing monetary authorities as they manage financial system liquidity and maintain tight monetary conditions.
For the coming week, the expected N2.448 trillion in maturities and the DMO’s N800 billion Treasury bills auction will be important determinants of liquidity movements in the banking system.
Chinwe Michael is a Nigerian business journalist and media professional with over 4 years of experience covering companies, financial markets, banking, fintech, economic policy, financial inclusion, and corporate affairs. She currently leads the Companies & Markets desk at BusinessDay, where she drives coverage of Nigeria’s corporate and capital markets, translates complex financial data into accessible stories, and mentors younger journalists. Prior to that, she was the head of the financial inclusion/fintech desk. With a background in banking and finance and extensive experience in media and communications, Michael has developed expertise in financial journalism, economic analysis, investigative reporting and market intelligence. Her work examines how monetary policy, corporate performance, capital flows, technology, and regulatory decisions affect businesses, investors, and households. She was selected from about 3,000 applicants as one of 20 journalists for Cohort 4 of the MTN Media Innovation Programme, gaining exposure to new approaches to journalism, technology, and media innovation. Her international journalism experience and engagement with professionals across Russia, Dubai, Saudi Arabia, and others in different sectors have further broadened her understanding of global communication and development.
