By Boluwatife Oshadiya
Key Points
- The Central Bank of Nigeria (CBN) sold approximately N3.3 trillion worth of Open Market Operation (OMO) bills across two major auctions last week.
- The auctions were significantly oversubscribed, reflecting strong demand from banks and foreign portfolio investors seeking high-yield fixed-income instruments.
- Despite the aggressive liquidity mop-up, banking system liquidity increased to N5.67 trillion due to inflows from matured OMO bills.
- Overnight lending rates declined marginally as liquidity conditions remained relatively robust.
- Analysts say the CBN’s sustained tightening stance signals continued efforts to contain inflationary pressures and stabilise the foreign exchange market.
Main Story
The Central Bank of Nigeria (CBN) intensified its liquidity tightening measures last week after selling Open Market Operation (OMO) bills valued at about N3.3 trillion across two major auctions, as the apex bank continues efforts to manage excess liquidity and curb inflationary pressure in the economy.
The auctions attracted strong participation from banks and foreign portfolio investors, underscoring sustained appetite for Nigeria’s high-yield fixed-income securities amid elevated interest rates.
According to auction results and market data reviewed by BizWatch Nigeria, the apex bank offered N600 billion worth of OMO bills during the first auction across 8-day and 134-day tenors. However, investor demand surged to N1.71 trillion, representing a bid-to-offer ratio of 2.9 times.
The CBN eventually allotted N1.70 trillion, with stop rates clearing at 21.90 percent for the 8-day tenor and 19.97 percent for the 134-day tenor. Demand was particularly concentrated on the shorter tenor, where the apex bank fully allotted over N1 trillion.
At a second auction conducted later in the week, the CBN again offered N600 billion across 33-day, 75-day and 96-day maturities. Total subscriptions climbed to N1.64 trillion, while allotments settled at N1.60 trillion.
Stop rates closed at 21.57 percent, 20.63 percent and 20.45 percent respectively across the three maturities.
The aggressive OMO sales came as the apex bank continues deploying monetary tightening tools to rein in inflation, stabilise the naira and reduce excess liquidity within the financial system.
However, despite the sizeable liquidity mop-up operations, system liquidity improved during the review period following inflows from matured instruments.
Data from Coronation Merchant Bank showed that banking system liquidity rose to N5.67 trillion from N4.96 trillion recorded in the previous week, largely driven by N2.71 trillion inflow from matured OMO bills.
Consequently, the Overnight Rate (OVN) declined by 11 basis points week-on-week to 22.19 percent, while the Open Repo Rate (OPR) remained unchanged at 22.00 percent.
Nigeria’s inflation rate has remained elevated in recent months, prompting the CBN to sustain an aggressive monetary tightening cycle through high benchmark interest rates and frequent OMO issuances targeted at institutional and foreign investors.
What’s Being Said
“The CBN sustained its aggressive liquidity management posture via two OMO auctions last week,” Coronation Merchant Bank stated in its market note.
“Cumulatively, the CBN sterilised about N3.30 trillion across both operations, underscoring the persistence of its liquidity tightening measures,” the firm added.
Market analysts say the continued oversubscription of OMO bills reflects growing investor confidence in Nigeria’s fixed-income market, particularly as yields remain attractive relative to other emerging markets.
Some analysts also note that strong foreign investor participation may help improve foreign exchange liquidity and support naira stability in the near term.
What’s Next
Market participants are expected to closely monitor the CBN’s next monetary policy decisions, particularly as inflationary pressures and exchange rate volatility remain key concerns for policymakers.
Analysts expect the apex bank to maintain its tight monetary stance in the short term, with additional OMO auctions likely if liquidity levels remain elevated.
Investors will also watch for upcoming inflation data and signals from the Monetary Policy Committee (MPC) regarding the future direction of interest rates.
Bottom Line
The CBN’s N3.3 trillion OMO sales highlight the apex bank’s determination to tighten liquidity conditions and manage inflationary risks. However, persistent liquidity inflows and strong investor demand suggest that excess cash within the banking system remains substantial, keeping pressure on the central bank to sustain aggressive monetary interventions.
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