Nigeria’s banking system liquidity dropped by N3.86 trillion on Thursday after the Central Bank of Nigeria carried out a fresh open market operation, tightening cash conditions across the financial system.
System liquidity fell 65.53 per cent to N2.03 trillion from N5.89 trillion, according to market data cited by AIICO Capital Limited in an investor note. The sharp decline followed the apex bank’s offer of N1 trillion in OMO bills, which absorbed a substantial amount of excess cash from banks.
Rates Hold Near Policy Target
Despite the liquidity squeeze, the Nigerian Overnight Financing Rate remained unchanged at 22.00 per cent, and the policy rate was also held at 22.00 per cent. The overnight interbank lending rate, however, edged up slightly to 22.30 per cent from 22.19 per cent, pointing to some upward pressure on the cost of short-term funds as banks adjusted to tighter conditions.
AIICO Capital said the movement showed that money-market rates had stayed relatively stable even with the large reduction in available banking system cash.
Near-Term Outlook
Liquidity could face further pressure in the near term, although a N57.42 billion coupon payment expected to enter the system may offer some relief, according to Herwood Securities Limited.
“We expect short-term borrowing costs to stay close to the central bank’s 22.00 percent target, but with the cash buffer now down to N2.03 trillion, the risk is that rates drift higher,” AIICO Capital said.
The firm added that the path of money-market rates would depend largely on the size of the next OMO auction and the amount of liquidity returned to banks through government payments and other system inflows.
Treasury Bill Yields Edge Higher
Meanwhile, treasury bill yields continued to rise in the secondary market as investors sought higher returns. The average treasury bill rate increased to 18.81 per cent from 18.77 per cent, reflecting ongoing selling pressure and repricing across the short-term fixed-income market.
Shift Since Start of Year
The latest liquidity movement also highlights a marked change in banking system cash conditions compared with the beginning of the year. According to AIICO Capital, banks are now holding 46.81 per cent less liquidity than at the start of 2026, while the overnight lending rate is 0.45 percentage points lower and treasury bill yields are 1.81 percentage points higher.
The combination of declining system liquidity and rising treasury bill yields suggests that monetary conditions remain restrictive, even though the key policy and overnight financing rates have stayed broadly anchored around 22 per cent, analysts said.
