Nigeria’s financial markets witnessed an unprecedented surge in system liquidity, reaching a historic peak of N5.73 trillion on Monday, up from N4.02 trillion the previous Friday. This remarkable increase follows recent policy adjustments by the Central Bank of Nigeria (CBN), aimed at balancing economic growth and inflation control.
CBN’s Policy Adjustments Drive Liquidity Surge
At its 302nd Monetary Policy Committee (MPC) meeting, the CBN reduced the Monetary Policy Rate (MPR) by 50 basis points to 27%, marking its first adjustment since November 2024. Additionally, the bank revised the Standing Facilities corridor to ±250 basis points around the MPR, down from +500/-100. These changes have significantly boosted activity in the Standing Deposit Facility (SDF), with placements soaring to N5.39 trillion on Monday alone.
The SDF allows commercial banks to deposit excess funds with the CBN for interest, serving as a critical tool for managing liquidity. By offering a secure, interest-bearing option, the SDF helps stabilize short-term market rates and curb inflationary pressures by absorbing surplus liquidity.
Declining Inflation Creates Room for Policy Easing
The CBN’s decision comes as Nigeria’s inflation rate continues to moderate, dropping to 20.12% in August 2025, marking the fifth consecutive month of decline. This trend provided the MPC with the flexibility to ease monetary policy, supporting liquidity and fostering economic growth while maintaining control over money supply.
Since the MPC’s announcement, system liquidity has more than doubled from N2.12 trillion the previous week. The increased attractiveness of the SDF, driven by the revised corridor, has encouraged banks to deposit record amounts with the CBN, earning safe returns without the risks associated with non-performing loans, which reached 6.03% in Q1 2025.
Money Market Rates Plummet
The CBN’s policy shift has also led to a significant decline in interbank lending rates. On September 24, 2025, the Open Buy Back (OBB) rate fell to 24.5%, and the overnight rate dropped to 24.88%, the lowest levels since November 2024. These reductions reflect the improved liquidity conditions in the financial system.
Abigael Kazeem-Adeshina, a research analyst at Norrenberger Financial Group, noted that the CBN is carefully balancing monetary policy. “The recent adjustments align with market expectations while ensuring effective liquidity management through tools like the SDF,” she said. Kazeem-Adeshina added that, depending on inflation trends in September and October, the CBN might consider another modest rate cut in November.
Implications for the Economy
While the surge in liquidity and record SDF placements signal confidence in the CBN’s policies, much of this liquidity remains sterilized at the central bank. This approach helps maintain monetary stability and curb inflation but limits the immediate availability of funds for credit creation and growth in the real economy.
As Nigeria navigates its economic challenges, the CBN’s strategic adjustments highlight its focus on fostering stability while supporting growth. However, the extent to which this liquidity will translate into broader economic benefits remains to be seen, as banks prioritize safe returns over riskier lending.
