CBN expected to withdraw N4.69tn after strong demand for OMO bills

Liquidity in Nigeria’s banking system rose to N8.84tn ahead of settlement of the Central Bank of Nigeria’s latest Open Market Operation bills, increasing expectations of a substantial withdrawal of cash from the market. Market data from AIICO Capital showed that liquidity increased by 37.01 per cent from N6.45tn. The current level is more than twice the N3.82tn recorded at the beginning of the year, reflecting the effect of OMO maturities and other money-market inflows.

The buildup occurred despite the CBN’s efforts to absorb surplus funds through government securities. The apex bank offered N2.5tn in OMO bills across three maturities on Tuesday, while strong investor demand reportedly lifted the amount raised to about N5tn. AIICO Capital expects approximately N4.69tn from the transaction to be debited from the banking system when the bills are settled.

That withdrawal would remove more than half of the current liquidity pool and could alter the direction of short-term interest rates. Overnight borrowing costs rose modestly despite the abundance of cash. The overnight lending rate increased by 28 basis points to 20.86 per cent, while the overnight policy rate remained at 20.50 per cent.

The Nigerian Overnight Financing Rate stayed at 20 per cent, the lower boundary of the current interest-rate corridor following recent monetary-policy easing. The average Treasury bill rate was unchanged at 17.84 per cent. AIICO Capital said money-market rates could remain close to the 20 per cent floor while liquidity stayed above N8tn.

It also said the demand for OMO instruments showed continued appetite for high-yielding naira assets as monetary policy and short-term funding conditions adjust.