The Central Bank of Nigeria (CBN) absorbed about N2.6 trillion in excess liquidity through its Standing Deposit Facility (SDF) as banking system liquidity expanded sharply last week.
System liquidity rose by 36 per cent week-on-week to N4.08 trillion, up from N3 trillion in the previous week, according to market data.
The increase was driven mainly by N2.45 trillion in primary market repayments, which injected fresh funds into the banking system.
Banks subsequently placed about N2.60 trillion with the CBN’s Standing Deposit Facility, reflecting the significant volume of surplus cash available in the market.
The inflows pushed the opening net surplus balance above N5 trillion.
However, the substantial SDF placements helped sterilise part of the excess liquidity and prevented the cash glut from triggering a sharper decline in short-term funding costs.
Despite the significant expansion in liquidity, money market rates remained relatively stable.
The Open Repo Rate held steady at 22 per cent, while the overnight rate declined by four basis points week-on-week to 22.10 per cent.
The Nigerian Interbank Offered Rate (NIBOR) curve also moderated across all tracked maturities.
The overnight, one-month, three-month and six-month rates declined by three, seven, three and 13 basis points, respectively, to 22.18 per cent, 22.63 per cent, 23.18 per cent and 23.54 per cent.
The modest decline in rates suggests that the CBN’s liquidity management operations continued to anchor market pricing despite the substantial surplus funds held by banks.
Rather than allowing the liquidity injection to translate into significantly cheaper short-term funding, the central bank’s facilities helped keep rates aligned with its restrictive monetary policy stance.
Analysts expect market liquidity to remain robust in the near term, supported by further inflows and government revenue distributions.
Cowry Research said in an emailed note to investors that liquidity conditions were expected to remain strong, supported by N900 billion in maturing OMO bills and anticipated FAAC disbursements for the July revenue allocation.
The research firm also noted that the Debt Management Office (DMO) was scheduled to conduct a N700 billion Treasury bills auction the following week.
“We expect another round of strong investor participation and healthy subscription levels, supported by elevated market liquidity and continued demand for high-yielding sovereign instruments, while secondary market yields are likely to remain broadly stable,” Cowry Research said.
Analysts at Cordros Research also projected sustained liquidity in the banking system.
“Barring any mop up activities by the CBN, we expect system liquidity to remain robust, supported by inflows from OMO maturities (N1.58 trillion),” Cordros Research said.
The outlook suggests that the banking system could continue to operate with substantial surplus liquidity in the near term, although the CBN’s liquidity management operations are expected to remain critical in determining how much of the excess cash translates into lower short-term market rates.
