By Boluwatife Oshadiya
Key Points
- Deposit money banks’ placements at the CBN Standing Deposit Facility declined after aggressive Open Market Operations auctions.
- The apex bank sterilised about N3.3 trillion from the financial system through multiple OMO auctions.
- Money market liquidity fell by more than 13 percent to N4.92 trillion.
- Overnight and Open Repo rates edged higher following tighter liquidity conditions.
- Investor demand for OMO bills remained strong across all auction tenors.
Main Story
Deposit money banks reduced their placements at the Central Bank of Nigeria’s Standing Deposit Facility (SDF) window following aggressive liquidity mop-up operations conducted through Open Market Operations (OMO) auctions.
The Central Bank sterilised approximately N3.3 trillion from the financial system through two separate OMO auctions conducted last week, reinforcing its liquidity tightening strategy amid inflationary pressures and efforts to stabilise the foreign exchange market.
The liquidity withdrawal came despite inflows of about N2.71 trillion from matured OMO bills.
According to market data, the Nigerian money market liquidity position moderated by 13.18 percent to N4.92 trillion as banks’ deposits at the apex bank declined after participating heavily in the cash-intensive auctions.
Banks’ placements at the Standing Deposit Facility fell by 14.84 percent to N4.64 trillion from N5.44 trillion recorded previously.
At the close of the trading session, money market rates tightened marginally. The Overnight lending rate rose by two basis points to 22.21 percent, while the Open Repo rate settled at 22 percent.
During the first OMO auction conducted by the CBN last week, the apex bank offered N600 billion worth of bills across the 8-day and 134-day tenors.
Investor appetite remained strong, with subscriptions rising to N1.71 trillion, representing a bid-to-offer ratio of 2.9 times. Total allotments stood at N1.70 trillion.
Stop rates for the auction cleared at 21.90 percent and 19.97 percent respectively, with the apex bank fully allotting N1.07 trillion on the shorter 8-day tenor.
At the second auction conducted later in the week, the CBN offered another N600 billion across the 33-day, 75-day and 96-day maturities.
Demand again remained robust as total subscriptions reached N1.64 trillion, while allotments closed at N1.60 trillion.
Stop rates for the respective tenors settled at 21.57 percent, 20.63 percent and 20.45 percent.
The sustained investor interest highlights continued appetite for high-yield fixed income instruments amid elevated interest rates and tight liquidity conditions in the financial system.
The CBN has intensified OMO auctions in recent months as part of broader monetary tightening efforts aimed at controlling excess liquidity, moderating inflation and supporting the stability of the naira.
Nigeria’s inflation rate has remained elevated despite a series of monetary policy rate hikes implemented by the Monetary Policy Committee over the past year.
What’s Being Said
Coronation Merchant Bank stated that the apex bank sterilised approximately N3.30 trillion through both OMO operations, underscoring the persistence of the CBN’s liquidity tightening measures.
Financial market analysts said the aggressive liquidity mop-up reflects the central bank’s commitment to reducing excess cash within the banking system and maintaining higher interest rates to combat inflationary pressures.
Analysts also noted that strong investor participation at the auctions signals sustained confidence in government securities despite prevailing macroeconomic uncertainties.
What’s Next
Market participants expect the CBN to sustain tight liquidity management measures in the near term as inflationary concerns persist.
Banks and investors are also expected to monitor future OMO auction stop rates and liquidity trends for indications of the apex bank’s monetary policy direction.
Analysts believe additional liquidity tightening measures could keep short-term interest rates elevated across the money market.
Bottom Line
The sharp decline in banks’ deposits at the CBN facility reflects the impact of aggressive liquidity sterilisation through OMO auctions, as the apex bank continues efforts to tighten monetary conditions, curb inflation and stabilise financial markets.
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