CBN Liquidity Tightening – N3.83 Trillion Withdrawn Shakes Nigeria’s Financial System

Nigeria’s financial system came under pressure last week as the Central Bank of Nigeria intensified its liquidity control measures, withdrawing an estimated N3.83 trillion from circulation. The move, aimed at curbing excess cash in the economy, significantly tightened available funds despite fresh inflows from maturing securities.

According to data from the Financial Markets Dealers Association (FMDA), average system liquidity dropped by 1.10% to N4.61 trillion. The decline reflects the heavy sterilisation efforts by the apex bank, which outweighed inflows from government instruments and kept market participants cautious throughout the week.

The tightening environment quickly spilled into the fixed income market, where investors demanded higher returns. Federal Government bond yields rose by 31 basis points to 16.71%, while Treasury bill yields jumped even higher, increasing by 45 basis points to 17.77%, driven by weaker demand and reduced liquidity support.

Market activity also slowed sharply as traders reacted to the cash squeeze. Secondary trading in bonds fell by 25%, while Treasury bill turnover dropped by 55%, showing clear signs of reduced participation and a more defensive investor posture across the financial system.

Despite the pressure, Nigeria’s external position remained relatively strong, with foreign reserves rising 0.78% to $50.35 billion. However, the naira still recorded mild losses in both official and parallel markets, reflecting lower trading volumes and ongoing foreign exchange market sensitivity to liquidity conditions.

source: Leadership