CBN May Launch OMO Auction As Excess Liquidity Surges In Banking System

The Central Bank of Nigeria (CBN) is expected to return to the open market with fresh Open Market Operation (OMO) bills as liquidity levels in the financial system rise sharply.

Market data show that system liquidity expanded by 31.90 per cent to close at a net long position of ₦3.63 trillion, up from ₦2.75 trillion recorded in the previous trading session.

The increase was largely driven by the repayment of OMO maturities totaling ₦993 billion, which injected significant funds into the banking system. In addition, Deposit Money Banks (DMBs) ramped up placements at the CBN’s Standing Deposit Facility (SDF), with balances rising to ₦2.55 trillion.

Liquidity conditions were further supported by inflows of ₦24.05 million from primary market activities, although part of the surplus was absorbed through ₦10 billion borrowed at the Standing Lending Facility (SLF).

Despite the abundance of funds, average funding costs edged higher. The Open Repo Rate (OPR) remained unchanged at 22.50 per cent, while the Overnight Rate (OVN) increased by 6 basis points to close at 22.86 per cent. Overall, the average funding rate rose marginally by 3 basis points to 22.68 per cent.

Analysts note that unless there is a major liquidity drain, conditions are likely to remain loose in the near term. However, expectations are mounting that the apex bank could step in with OMO issuances to sterilise excess liquidity and manage short-term interest rate pressures.

In the secondary market, Treasury bills closed on a bearish note, with the average benchmark yield rising by 2 basis points to 17.63 per cent. In contrast, the OMO secondary market recorded bullish sentiment as average yields declined slightly by 1 basis point to 21.16 per cent.

Market participants continue to monitor the CBN’s liquidity management strategy closely, particularly as excess funds pose inflationary risks if left unchecked.