CBN Tightens Liquidity, Withdraws N15 Trillion from Nigeria’s Financial System in January
Nigeria’s financial system faced intense liquidity pressure in January as the Central Bank of Nigeria (CBN) continued its aggressive monetary tightening. Despite a slight improvement from December, average system liquidity closed the month at a net negative of N2.4 trillion, reflecting sustained cash shortages across banks and tight interbank funding conditions.
The CBN withdrew over N15 trillion from the system during the month through various operations. This included N8.5 trillion from Open Market Operations (OMO) sales, N2.9 trillion placed by banks at the Standing Deposit Facility (SDF), and N3.7 trillion raised through primary market issuances. These outflows were partially offset by N8.4 trillion in inflows from OMO maturities, primary market repayments, and the Standing Lending Facility, leaving overall liquidity still in deficit.
The tight liquidity environment pushed borrowing costs higher. The Open Buy Back Rate and Overnight Rate rose by 3.6 percentage points month-on-month to close at 26.1% and 26.4% respectively, highlighting the stress banks face in accessing short-term funds. In addition, the CBN conducted two Nigerian Treasury Bills (NTB) auctions and three rounds of OMO auctions to manage liquidity, offering N2.4 trillion in NTBs to meet investor demand.
In the NTB market, investor appetite was robust, particularly for the long-dated 364-day bills, which recorded a bid-to-offer ratio of 2.4 times. Meanwhile, yields in the secondary Treasury bill market rose, with average yields increasing by 60 basis points to 18.5%, as short- and medium-term bills experienced strong sell-offs amid ongoing fiscal financing needs and tight cash conditions.
On the bond front, the Debt Management Office (DMO) reopened long-dated FGN bonds worth N900 billion, attracting strong interest from investors. The January 2035 bond, in particular, saw a bid-to-offer ratio of 3.6 times, indicating confidence in longer-term securities. Average bond yields adjusted slightly, with short- and mid-term yields compressing while long-dated yields edged higher, reflecting strategic positioning by portfolio managers to lock in attractive returns amid expectations of future rate moderation.
source: leadership