The Central Bank of Nigeria (CBN) intensified its use of securities to manage excess liquidity in the banking system in September, withdrawing an estimated N6.62 trillion in net liquidity through Open Market Operations (OMO). According to an analysis of CBN auction and maturity data, the bank sold approximately N17.51 trillion worth of OMO bills across five auctions held on September 1, 8, 16, 24, and 29.
The CBN sold N2.88 trillion, N4.40 trillion, N3.29 trillion, N2.255 trillion, and N4.686 trillion worth of OMO bills in the five auctions, respectively. However, about N10.89 trillion of maturing OMO bills was repaid during the month, offsetting roughly 62% of the value of new bills sold. This resulted in a net withdrawal of approximately N6.62 trillion, representing about 38% of the CBN's gross OMO sales.
Investor appetite for the CBN's OMO instruments remained strong in September, despite declining stop rates. The newly introduced 266-day OMO bill, which matures in 2027, attracted N4.543 trillion in subscriptions against an initial offer of N1 trillion, representing demand approximately 4.54 times the amount offered. The bill cleared at 16.23%, with the CBN allotting N2.996 trillion.
The 182-day and 147-day instruments cleared at 16.94% and 17.24%, respectively. Across the five September auctions, total subscriptions reportedly reached approximately N27 trillion, up significantly from the N18.72 trillion recorded in August. This strong demand suggests that banks and other investors continued to find CBN securities attractive even as yields moderated.
Financial analysts noted that the size of the September operations should not be interpreted as a N17.51 trillion one-way withdrawal from the banking system, as a substantial portion of the amount represented the rollover or replacement of maturing securities. According to them, what matters for liquidity conditions is the difference between what is withdrawn and what is returned.
Experts also noted that the combination of substantial OMO demand and more than N6.2 trillion reportedly held under the Standing Deposit Facility (SDF) as of September 29 points to a banking system that still had significant investible liquidity. The CBN's decision to issue longer-tenor instruments could have implications for future liquidity conditions, as more funds would remain locked up until 2027.
Financial sector players say the operations are significant because the Apex Bank's management of excess liquidity can influence short-term interest rates, money-market conditions, bank lending, and indirectly, inflationary pressures. Sustained liquidity sterilisation could help moderate excess naira liquidity and reduce the possibility of large pools of idle funds moving into foreign exchange or other speculative assets.
Key points
- CBN withdrew N6.62 trillion in net liquidity from banking system via Open Market Operations in September.
- Investor appetite for CBN's OMO instruments remained strong despite declining stop rates.
- Sustained liquidity sterilisation could help moderate excess naira liquidity and reduce inflationary pressures.
