Liquidity Mop-up Shrinks Banking System Cash by 18.4% Despite Expected N2.56tn Inflows

Nume Ekeghe

Liquidity in  banking system declined sharply by 18.4 per cent last week as monetary tightening by the Central Bank of Nigeria (CBN), offset sizeable market inflows, highlighting the monetary authority’s continued determination to contain excess liquidity and inflationary pressures.

According to the Financial Markets Dealers Association (FMDA) Weekly Market Snapshot, system liquidity fell to N3.78 trillion from N4.63 trillion recorded in the previous week following the impact of CBN’s Cash Reserve Ratio (CRR) debits, a private Open Market Operations (OMO) auction and the Federal Government bond auction conducted by the Debt Management Office (DMO).

The report noted that the DMO allotted N929.32 billion during the bond auction, further withdrawing liquidity from the financial system even as the CBN maintained its liquidity management operations.

Despite the liquidity squeeze, the market is expected to receive fresh inflows estimated at N2.56 trillion this week. However, the projected inflow represents a sharp decline from the N5.40 trillion recorded in the previous week, reflecting lower maturities across key fixed-income instruments. OMO maturities account for about 85 per cent of the expected inflows, underscoring the CBN’s dominant role in determining short-term market liquidity.

It stated: “System liquidity declined by 18.41 per cent to N3.78 trillion from N4.63 trillion in the previous week, largely reflecting the impact of the CBN’s CRR debits, a private OMO auction and the FGN bond auction, through which the DMO allotted N929.32 billion. 

“Looking ahead, an estimated N2.56 trillion is expected to flow into the financial system this week, with OMO maturities accounting for about 85 per cent of the projected inflows. The CBN is scheduled to conduct a N700 billion Treasury bill auction this week, comprising N100 billion in 91-day bills, N100 billion in 182-day bills and N500 billion in 364-day bills.” 

Meanwhile, sentiment remained positive in the fixed-income market following the successful FGN bond auction. Average sovereign bond yields declined by 37 basis points to 17.16 per cent as investors increased buying activity after the DMO revised its third-quarter issuance calendar, signalling reduced bond supply for the remainder of the quarter.

The bond auction itself recorded strong investor appetite, with subscriptions reaching about N1.74 trillion against N1.20 trillion offered. The reopening of the 16.2499 per cent FGN April 2037 bond attracted the strongest demand, reinforcing bullish sentiment in the secondary market.