Liquidity in Nigeria’s banking system fell sharply by N3.86tn following a fresh Open Market Operation by the Central Bank of Nigeria, putting pressure on cash available to banks and other participants in the money market.
System liquidity declined by 65.53 per cent to N2.03tn from N5.89tn, according to financial market data from AIICO Capital Investment Managers. The decline followed the CBN’s latest OMO operation, through which the apex bank sold short-term securities to absorb liquidity from the financial system.
The CBN offered N1tn worth of OMO bills in the operation, covering 69-day, 90-day and 153-day instruments. The central bank’s data showed successful allotments at stop rates of 19.25 per cent, 19.05 per cent and 18.39 per cent respectively.
Despite the sharp reduction in available liquidity, the Nigerian Overnight Financing Rate remained at 22.00 per cent, the same level as the monetary policy rate. However, the overnight interbank lending rate rose to 22.30 per cent from 22.19 per cent, indicating some increase in the cost of short-term funds.
AIICO Capital said money market rates had remained relatively stable despite the significant decline in system liquidity. However, it noted that the lower cash buffer could create upward pressure on short-term borrowing costs if liquidity conditions tighten further.
The investment firm said the direction of money market rates would depend on the size of subsequent OMO auctions and the amount of liquidity returned to the financial system through government payments and other inflows.
Some relief could come from a N57.42bn coupon payment expected to enter the financial system, according to market analysis cited by AIICO Capital. Such an inflow could provide additional cash to banks and help ease some of the pressure created by the OMO operation.
Meanwhile, activity in the treasury bill market continued to reflect tighter monetary conditions. The average treasury bill rate rose to 18.81 per cent from 18.77 per cent as investors demanded higher returns, while securities were repriced in the secondary market.
AIICO Capital said banks were holding 46.81 per cent less liquidity than they had at the beginning of 2026. Over the same period, the overnight lending rate was 0.45 percentage points lower, while treasury bill yields had risen by 1.81 percentage points.
The latest movement suggests that liquidity management remains a key factor in the money market as the CBN uses OMO operations to influence cash conditions. While interest rates have remained around 22 percent, further liquidity withdrawals could put additional pressure on short-term funding costs if sufficient inflows do not return to the banking system.