The Central Bank of Nigeria reduced its liquidity mop-up through Open Market Operations in October, allowing more funds to remain in the banking system as repayments on maturing securities exceeded fresh sales.
Data from the Financial Markets Dealers Association showed that the CBN allotted N6.182tn in new OMO bills in October, compared with N9.051tn in maturities, leaving a net repayment of about N2.87tn before other liquidity movements.
The development marked a shift from the aggressive liquidity tightening recorded in September, when the apex bank sold N17.51tn in OMO securities against maturities of N10.89tn, withdrawing a net N6.62tn from the financial system.
The moderation in OMO issuance coincided with a 56.75 per cent increase in banking system liquidity to N7.373tn in October, from N4.703tn in September.
The FMDA’s October market report indicated that the CBN’s reduced absorption of excess funds, alongside government disbursements and repayments on maturing securities, helped boost cash balances held by banks.
The change became particularly evident towards the end of October, when the CBN reduced its allotments at its final OMO auction.
The easing in liquidity withdrawal comes as the financial system prepares for further inflows in November, with the FMDA projecting N13.79tn from maturing securities and government payments.
However, the projected inflows do not necessarily represent a permanent increase in banking system liquidity, as the CBN could absorb part of the funds through fresh OMO sales.
The extent to which banks retain the additional funds will depend largely on the volume of new securities offered and the central bank’s appetite for liquidity management.
The shift is also significant for the fixed-income market, where lower OMO mop-up could leave banks and other investors with more funds to deploy in T-bills and other short-term instruments.
If the CBN sustains the selective allotments seen towards the end of October, excess liquidity could persist and exert downward pressure on short-term money market yields.
Despite the higher liquidity, the Nigeria Overnight Financing Rate remained unchanged at 20 per cent in October, while the overnight rate declined slightly by five basis points to 20.38 per cent.
The Monetary Policy Rate also remained at 23 per cent following the CBN’s September decision to cut it by 350 basis points.
The FMDA, however, cautioned banks to maintain adequate liquidity buffers, noting that the central bank could continue using OMO auctions to manage excess funds in the system.