Liquidity conditions in Nigeria’s financial system deteriorated sharply following a major Open Market Operations (OMO) bills auction settlement, as limited inflows failed to cushion the impact of the Central Bank of Nigeria’s aggressive liquidity mop-up.
The CBN on Tuesday sold ₦2.64 trillion worth of OMO bills to deposit money banks and foreign portfolio investors, significantly tightening money market conditions and pushing system liquidity into negative territory for the first time this year.
The substantial outflow triggered a spike in short-term funding costs, with interbank rates climbing as market participants scrambled for liquidity. This development came amid an already cautious market environment, further exacerbated by the absence of sizable inflows to offset the settlement impact.
Market data showed that system liquidity opened the day at a deficit of ₦973.90 billion, representing a dramatic swing from the previous surplus position of ₦3.77 trillion—a net decline of ₦4.74 trillion.
Analysts at AIICO Capital Limited attributed the sharp contraction primarily to the OMO auction settlement, alongside ₦400 billion in borrowings at the Central Bank’s Standing Lending Facility (SLF). These outflows outweighed ₦1.48 trillion placed by commercial banks at the Standing Deposit Facility (SDF), as well as a ₦91.34 billion coupon inflow from the January 2042 Federal Government bond.
The tightening liquidity conditions spilled into the Treasury bills market on Wednesday, where the Debt Management Office raised ₦1.06 trillion from an offer size of ₦1.15 trillion. Market participants now expect further pressure on liquidity levels in the absence of supportive inflows.
Funding costs reflected the strain. By the close of trading on Wednesday, the average money market rate rose by 4 basis points to 22.65%, according to data from FMDQ. While the Open Repo Rate (OPR) remained unchanged at 22.50%, the Overnight Rate (OVN) increased sharply by 9 basis points to 22.80%, highlighting heightened short-term borrowing demand.
Despite the current tightness, AIICO Capital projects some relief in the coming days, supported by anticipated inflows from maturing instruments. These include ₦1.20 trillion from the January 22, 2026 bond maturity and ₦725.19 billion from Nigerian Treasury bills maturities, which are expected to partially offset the liquidity drain caused by midweek auction settlements.
The evolving liquidity landscape underscores the CBN’s continued commitment to monetary tightening, even as market participants adjust to higher funding costs and more restrictive financial conditions.
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