CBN OMO Sales Cut Banking Liquidity by N3.86tn to N2.03tn

Liquidity available across Nigeria’s banking system dropped by N3.86 trillion following fresh Open Market Operations by the Central Bank of Nigeria (CBN).

System liquidity declined to N2.03 trillion from N5.89 trillion, representing a 65.53 percent contraction as the apex bank continued to use short-term securities to regulate the volume of money circulating through the financial system.

The movement followed a CBN OMO auction in which the regulator initially offered N1 trillion worth of securities across three maturities.

Investor demand substantially exceeded the amount offered with total subscriptions reaching about N3 trillion.

The CBN eventually allotted approximately N2.5 trillion, taking advantage of the strong demand to withdraw more liquidity than initially proposed.

The securities were issued across 69-day, 90-day and 153-day maturities.

The 69-day instrument cleared at 19.25 percent, while the 90-day bill was allotted at 19.05 percent. The longer 153-day instrument cleared at 18.39 percent.

The decline in banking-system liquidity came shortly after a substantial injection of cash into the financial market.

Earlier in the week, repayments from maturing OMO securities and primary-market instruments released about N3.81 trillion into the banking system.

The resulting increase in available funds gave the CBN room to conduct another sterilisation operation without immediately creating a system-wide shortage of liquidity.

The latest movement illustrates the increasingly active liquidity cycle confronting the central bank.

When OMO securities mature, the CBN repays investors and the money returns to the financial system. New OMO sales can subsequently remove part of that cash again as banks and other eligible investors purchase fresh securities.

The regulator uses the operations to influence short-term liquidity conditions and support the transmission of monetary policy across financial markets.

Despite the sharp reduction in available liquidity, short-term funding costs remained relatively stable.

The Nigerian Overnight Financing Rate held at 22 percent, while the overnight interbank lending rate increased modestly to 22.30 percent from 22.19 percent.

The limited movement suggests banks retained sufficient cash to meet immediate funding requirements despite the substantial withdrawal of excess liquidity.

Pressure was more visible in the Treasury bill market.

Average Treasury bill yields increased to 18.81 percent from 18.77 percent as investors continued to adjust positions in response to changing liquidity conditions and expectations for monetary policy.

The latest contraction also leaves the banking system with substantially less excess cash than it held at the beginning of 2026.

Available system liquidity is now about 46.81 percent below its level at the start of the year, indicating that monetary conditions remain relatively restrictive despite periods of substantial liquidity injections from maturing securities and government-related inflows.

The development is particularly significant as investors assess the direction of CBN monetary policy.

Nigeria’s headline inflation has moderated considerably, while foreign exchange reserves have climbed above $54 billion and the naira has demonstrated greater stability.

Those improvements have strengthened expectations that policymakers could gradually move toward lower interest rates.

Liquidity management, however, remains central to that process.

Allowing excessive cash to remain in the banking system could weaken the transmission of monetary policy, increase demand for foreign currency or contribute to renewed inflationary pressure.

The CBN can therefore reduce benchmark interest rates while separately using OMO securities to control the amount of liquidity available to fina