Commercial banks in Nigeria are increasingly channeling their excess liquidity into the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF), taking advantage of the adjusted interest rate pegged close to the monetary policy rate.
Market reports indicated that liquidity levels in the financial system climbed above ₦7.1 trillion last week as the apex bank refrained from extensive liquidity mop-ups. This development followed refunds from the CBN to commercial banks for excess cash reserve ratio (CRR) holdings, triggered by the recent reduction in the monetary policy rate (MPR) and CRR adjustments. These actions collectively boosted liquidity within the money market.
Despite the influx from maturing investment instruments, the CBN has remained largely inactive in deploying Open Market Operations (OMO) as a liquidity management tool, with analysts expecting such activities to resume before the fourth quarter Treasury Bills (T-Bills) issuance.
By the end of last week, the financial system’s liquidity had settled at ₦5.733 trillion, reflecting a dip from the previous peak. This moderation helped stabilize interbank rates, while banks continued to channel excess funds into the CBN’s SDF window.
AIICO Capital Limited disclosed that total funds parked in the SDF window exceeded ₦6 trillion, underscoring banks’ cautious approach toward riskier lending amid fears of increasing loan defaults. Similarly, Cowry Asset Management Limited noted that as of mid-week, ₦5.39 trillion had already been deposited with the CBN, signaling a subdued credit appetite among banks and a preference for risk-free placements.
Although liquidity levels remained elevated, cash flow in the system was constrained by heavy outflows such as ₦731 billion in OMO repayments and ₦1.26 trillion in Federal Government Bond settlements handled by the Debt Management Office (DMO). Additional debit transactions totaling ₦576.62 billion also tightened market liquidity. Nevertheless, overall liquidity closed the week at ₦5.73 trillion, marking a 43% week-on-week increase.
Analysts observed that despite the abundant liquidity, short-term borrowing rates remained firm. The overnight Nigerian Interbank Offered Rate (NIBOR) increased slightly by 10 basis points to 24.88%, while the Open Buy Back (OBR) rate held steady at 24.50%.
For the coming week, Cowry Asset Management anticipates that liquidity will remain strong, buoyed by upcoming maturities worth ₦250 billion in OMO bills and ₦230.76 billion in T-Bills. However, these inflows are expected to be offset by renewed liquidity sterilization efforts through fresh auctions.
The CBN last month lowered the benchmark interest rate by 50 basis points to 27% and revised the asymmetric corridor around the policy rate to +250/-250 basis points from +500/-100 basis points. CardinalStone Securities Limited noted that the adjustment means banks can now borrow from and deposit funds with the CBN at 29.5% and 24.5%, respectively.
 Standing Deposit Facility (SDF), taking advantage of the adjusted interest rate pegged close to the monetary policy rate.){kind=link}