The Central Bank of Nigeria (CBN) is set to withdraw about N4.69 trillion from the banking system following the settlement of its latest Open Market Operation (OMO) bills, as liquidity in the financial system surged to N8.84 trillion.
The latest liquidity position represents a 37.01 per cent increase from N6.45 trillion, according to market data from AIICO Capital Limited.
The surge has pushed excess liquidity to more than twice the N3.82 trillion recorded at the beginning of the year, reflecting the combined impact of OMO maturities and other inflows into the money market.
The buildup occurred despite renewed efforts by the CBN to absorb surplus cash through the sale of government securities.
The apex bank offered N2.5 trillion in OMO bills across three maturities on Tuesday, with strong investor demand reportedly pushing the eventual amount raised to about N5 trillion.
The transaction is expected to reverse a significant portion of the liquidity buildup once the securities are settled, with market participants closely monitoring its impact on short-term funding rates.
According to AIICO Capital, about N4.69 trillion from the OMO sale is expected to be debited from the banking system upon settlement.
The withdrawal would represent a substantial reduction from the current N8.84 trillion liquidity pool and could alter the direction of short-term money-market rates.
Despite the abundant liquidity, overnight borrowing costs recorded a modest increase.
Analysts said the overnight lending rate rose by 28 basis points to 20.86 per cent, while the Overnight Policy Rate (OPR) remained at 20.50 per cent.
The Nigerian Overnight Financing Rate, however, stayed at 20 per cent, representing the lower boundary of the current interest-rate corridor following the CBN’s recent monetary policy easing.
The average Treasury bill rate also remained unchanged at 17.84 per cent, according to AIICO Capital.
AIICO Capital expects money-market rates to remain close to the 20 per cent floor as long as banking-system liquidity remains above N8 trillion.
However, the investment firm expects the settlement of the latest OMO transaction to significantly reduce the amount of cash available to banks.
The liquidity position has become a key market indicator as banks manage their cash positions amid the CBN’s continued use of open-market operations to regulate financial-system liquidity.
The strong demand for OMO instruments also highlights continued investor appetite for high-yielding naira assets, particularly as monetary policy and short-term interest rates adjust.
With N4.69 trillion expected to leave the system upon settlement, banks and other market participants will be watching closely to see how the liquidity mop-up affects funding conditions and short-term interest rates.