The Central Bank of Nigeria’s (CBN) aggressive liquidity tightening strategies have significantly impacted money market rates, pushing short-term borrowing costs to new highs. As banks brace for fresh FAAC inflows, average system liquidity plummeted from ₦986.49 billion to ₦180.96 billion, sparking a sharp rise in overnight funding rates.
According to FMDQ data, the open repo rate climbed 167 basis points to 28.17%, while overnight lending rose 193 basis points to 28.92%. Analysts attribute the tightening to the CBN’s recent actions, including cash reserve ratio (CRR) debits and a heavily subscribed ₦600 billion Open Market Operations (OMO) auction that drew ₦1.15 trillion in bids.
The apex bank eventually allotted ₦1.07 trillion in OMO bills, absorbing liquidity and spiking funding costs. Although a maturity of ₦985.88 billion briefly eased conditions midweek, subsequent outflows from cross-currency repayments, FX settlements, and net Treasury bill funding totaling ₦134.8 billion reignited liquidity pressures, according to AIICO Capital.
Cordros Capital reported that a combined ₦2.07 trillion in outflows—₦1.07 trillion from OMO and ₦1 trillion via FX swaps—overwhelmed the inflows from maturing OMO and NT-bills. Consequently, the market closed with a net long liquidity position of ₦780.22 billion, down from ₦986.79 billion a week earlier.
The CBN’s liquidity management was further evidenced by heavy traffic at its Standing Deposit Facility window, which averaged ₦872.98 billion throughout the week.
Market watchers suggest that short-term benchmark rates may remain elevated, close to the 28% mark, until a wave of inflows—₦1.12 trillion in FAAC disbursements, ₦283.79 billion in maturing Treasury bills, and ₦216.76 billion in bond coupon payments—enters the financial system.
Unless the CBN launches another liquidity mop-up operation, analysts expect these inflows to provide substantial relief and restore balance to the money market in the coming week.
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