CBN Drains N1.1 Trillion via OMO Auctions in May to Boost FX Inflows Amid Tight Liquidity
The Central Bank of Nigeria (CBN) withdrew a substantial N1.1 trillion from the financial system through Open Market Operation (OMO) auctions in May 2025, aiming to tighten naira liquidity and encourage foreign exchange (FX) inflows, according to market analysts from Afrinvest and Cowry Asset Management. This monetary tightening led to an average system liquidity deficit of N550.9 billion, worsening from N453.8 billion in April, highlighting the intensifying liquidity squeeze.
The liquidity contraction was driven by the CBN’s aggressive use of key monetary tools, including the Standing Deposit Facility which absorbed N827 billion, alongside significant OMO sales and primary market bond drawdowns totaling N1.5 trillion. These outflows significantly outpaced liquidity injections from the Standing Lending Facility, OMO maturities, and primary market repayments, signaling the apex bank’s determined stance on managing excess liquidity.
Despite the tightening, short-term interest rates remained relatively stable, with the Open Repo Rate steady at 26.5% and the Overnight Rate increasing slightly by 12 basis points to 27%. Analysts note that the CBN’s strategy behind the OMO auctions extends beyond liquidity management—it aims to attract foreign portfolio investors by offering high-yield naira instruments amid a more stable FX environment.
During May, the CBN also held Nigerian Treasury Bills auctions totaling N900 billion across varying tenors. These auctions saw heavy oversubscription with bids reaching N2.7 trillion, reflecting strong investor appetite, especially for the 182-day bills. The apex bank allotted N1.2 trillion in total, exceeding the offer size and demonstrating market confidence in high-yield government instruments despite liquidity pressures.
Looking ahead, market experts anticipate continued bearish sentiment in the fixed income market, with yields expected to remain high due to ongoing fiscal borrowing and the CBN’s tight monetary policy. Analysts warn that persistent liquidity challenges will keep borrowing costs elevated, sustaining pressure on the secondary T-bills market in the near term.
Source: The Sun