The Central Bank of Nigeria (CBN) pulled a record N13.41 trillion from the financial system in January 2026, nearly five times the N2.77 trillion withdrawn during the same month last year. The move highlights the apex bank’s aggressive liquidity management strategy at the start of the year, aiming to curb excess money supply and moderate inflationary pressures.
Data from the Financial Markets Dealers Association’s (FMDA) Monetary and Credit Statistics show that both broad and narrow money measures contracted. Broad Money (M3) declined 0.8% month-on-month to N123.36 trillion, while Narrow Money (M2), representing liquid spendable funds, fell to N123.35 trillion. Meanwhile, private sector credit eased by 0.8% to N75.24 trillion, and bank reserves dropped sharply by 5.5% to N30.26 trillion, reflecting the direct impact of the massive liquidity mop-up.
Despite the tight liquidity in January, the CBN signaled a potential shift in monetary policy when it reduced the benchmark rate from 27% to 26.5% on February 24. Analysts suggest that this move could mark the peak of the current tightening cycle and pave the way for gradual improvement in credit conditions from March onward, potentially easing borrowing costs for businesses and households.
A closer look at the banking system shows contrasting trends in domestic and foreign assets. Net Foreign Assets (NFA) dropped 6% to N29.61 trillion, while Net Domestic Assets (NDA) rose 0.9% to N93.76 trillion, supported by domestic credit growth. Over the past six months, NFA fell sharply from N41.66 trillion to N29.61 trillion, while NDA increased steadily, reflecting sustained domestic economic activity despite tighter foreign liquidity.
The January liquidity squeeze continues a broader trend from 2025, during which the CBN relied on Open Market Operations and Treasury bill issuances to manage excess funds in the banking system. While interbank liquidity remained constrained, currency outside banks fell slightly to N5.21 trillion. February’s policy rate cut suggests the apex bank may now gradually ease its tightening stance, offering hope for more accessible credit in the coming months.
source: The Sun