Nigeria: Liquidity tightening pushes Nigeria’s overnight rate to 22.20%

Nigeria’s overnight lending rate rose marginally as tighter liquidity conditions followed recent Central Bank of Nigeria (CBN) treasury bills transactions that drained funds from the banking system.

The overnight rate increased by 2 basis points to 22.20 per cent, while the Open Buyback (OBB) rate remained unchanged at 22 per cent.

The movement reflected the impact of the settlement of the CBN’s midweek treasury bills auction, which temporarily reduced the amount of cash available for interbank transactions.

System liquidity falls by N930bn

Data from Herwood Securities Limited showed that system liquidity opened at a N3.66tn credit balance, down N930bn from the previous session’s N4.61tn position.

The decline followed the settlement of government securities purchased by banks and other investors. The transactions effectively locked up funds that would otherwise have been available for short-term lending across the banking system.

Despite the reduction, liquidity remained firmly in surplus, indicating that financial institutions continued to hold substantial cash buffers.

CBN sterilisation adds pressure to liquidity

Liquidity conditions have also been influenced by the CBN’s ongoing sterilisation operations aimed at managing excess cash in the financial system.

Earlier in the week, the central bank sold N2.888tn in Open Market Operations (OMO) bills, further absorbing liquidity from the market as part of its monetary policy implementation.

The substantial liquidity withdrawal came against a backdrop of strong demand for treasury bills, with banks looking to deploy excess funds into short-term government securities.

The N4.61tn liquidity position recorded earlier in the week had provided financial institutions with sufficient funds to participate actively in the treasury bills market.

N734.81bn maturities could ease liquidity pressure

Some relief is expected as N734.81bn worth of treasury bills mature, potentially returning funds to the banking system.

The expected inflow could partially offset recent liquidity withdrawals and reduce pressure on short-term funding costs.

Market participants consequently expect the overnight and OBB rates to remain relatively stable around current levels in the near term, provided the CBN does not introduce another significant liquidity withdrawal.

CBN operations continue to shape money-market rates

The latest movement in money-market rates highlights the direct impact of the CBN’s liquidity-management operations on short-term borrowing conditions.

As the central bank continues to balance monetary tightening with financial-system stability, changes in its treasury bills and OMO operations remain important indicators for banks and other financial-market participants.

The persistence of surplus liquidity, alongside scheduled government securities maturities, could help limit volatility in short-term funding rates even as the CBN maintains an active approach to liquidity management.