The latest OMO auction marks the apex bank’s third liquidity absorption exercise in eight days, as N2.45tn in fresh inflows is expected to enter the banking system this week…….
The Central Bank of Nigeria (CBN) is stepping up efforts to contain excess liquidity in the banking system, offering another N1.5 trillion in Open Market Operations (OMO) securities as substantial cash inflows threaten to increase pressure on monetary conditions.
The latest auction, scheduled for Tuesday, November 10, comes against the backdrop of rising banking system liquidity, which climbed to N8.505 trillion at the close of trading on Friday, November 6, from N7.373 trillion recorded a week earlier.
The increase represents a 15.36 per cent week-on-week growth, according to the Financial Market Dealers Association (FMDA) in its weekly market report released on Monday.
The CBN’s latest offer is divided equally across three investment tenors, with N500 billion available for each of the 154-day, 252-day and 329-day instruments.
The auction is the third OMO exercise conducted by the apex bank between November 3 and November 10, reflecting its renewed efforts to withdraw excess cash from the financial system.
The timing is particularly significant as the banking sector is expected to receive another N2.448 trillion in liquidity inflows this week, largely from maturing OMO securities.
The FMDA estimates that total liquidity inflows will reach N2.448 trillion this week, although this represents a 6.21 per cent decline from the N2.610 trillion recorded in the preceding week.
Despite the lower projection, the volume of maturing securities expected to return funds to the banking system remains substantial, with OMO maturities accounting for the overwhelming share.
The association projects OMO maturities at N2.298 trillion, representing a 13.99 per cent increase from the N2.016 trillion recorded in the previous week.
This accounts for approximately 93.9 per cent of the total expected inflows.
Treasury Bills maturities are expected to contribute N148.565 billion, marking a 73.89 per cent decline from the previous week’s figure.
Corporate bond coupon payments are projected at N1.707 billion, down 86.75 per cent, while no inflows are expected from commercial paper maturities, Federal Government bond coupons, bond maturities or Federation Account Allocation Committee distributions.
Meanwhile, CBN financial data show that deposits held by banks at the apex bank’s Standing Deposit Facility (SDF) stood at N5.915 trillion on November 9, compared with N8.311 trillion recorded on November 6.
The decline followed OMO settlements, indicating that the apex bank’s liquidity absorption activities are already drawing down funds parked by commercial banks.
However, the movement in SDF balances differs from the broader banking system liquidity figures, which measure the overall availability of funds across the financial system.
The actual impact of the projected inflows will therefore depend on the volume of fresh OMO securities the CBN sells, alongside other government borrowing activities during the week.
The latest offer follows two major OMO auctions conducted earlier in November, through which the CBN has already allotted approximately N5.667 trillion.
The amount represents about 91.7 per cent of the N6.182 trillion allotted throughout October, highlighting the pace at which the apex bank has intensified its liquidity management operations.
At the November 3 auction, the CBN initially offered N1.5 trillion but received subscriptions worth N3.52 trillion before allotting N2.95 trillion.
The stop rates for the 119-day, 126-day and 133-day instruments stood at 17.77 per cent, 17.71 per cent and 17.67 per cent, respectively.
A second auction on November 6 attracted even stronger investor demand, with subscriptions reaching N5.74 trillion against another N1.5 trillion offer.
The apex bank eventually allotted N2.72 trillion, setting stop rates at 17.25 per cent for the 179-day instrument, 16.54 per cent for the 270-day tenor and 15.74 per cent for the 361-day security.
While the CBN has increased its OMO issuance, the Debt Management Office (DMO) has maintained a relatively cautious approach to Treasury Bills allotments despite strong investor demand.
At its November 4 auction, the DMO offered N800 billion but allotted N509.401 billion after receiving subscriptions worth N2.045 trillion.
The allotment represented approximately 24.9 per cent of total investor bids, with stop rates remaining unchanged.
The debt office is scheduled to return to the domestic debt market on November 11 with another N800 billion Treasury Bills offer.
The offer comprises N100 billion each in 91-day and 182-day instruments, alongside N600 billion in 364-day bills.
Settlement is expected on November 12, coinciding with N148.565 billion in Treasury Bills maturities due during the period.
The latest developments reflect a broader liquidity management challenge that has persisted despite the CBN’s aggressive use of OMO securities to absorb excess funds from the banking system.
Earlier in November, the FMDA projected total liquidity inflows of approximately N13.79 trillion for the month, about N292 billion higher than its October estimate.
OMO maturities, Federation Account allocations and Treasury Bills repayments are expected to account for approximately 96.8 per cent of the projected monthly inflows.
The scale of the challenge is also reflected in the apex bank’s September operations, when it allotted N17.51 trillion in OMO securities against maturities of N10.89 trillion, resulting in a net liquidity withdrawal of approximately N6.62 trillion.
Despite those interventions, banks’ deposits at the CBN’s Standing Deposit Facility climbed from N6.966 trillion on November 4 to N8.311 trillion on November 6.
The latest weekly projections suggest that maturing OMO securities will continue to provide a major source of fresh liquidity in the near term.
With nearly 94 per cent of this week’s expected inflows tied to OMO maturities, the outcome of the latest auction and subsequent monetary operations will be crucial in determining how much excess cash remains in the banking system.
The CBN’s ability to balance maturing securities with fresh liquidity withdrawals, alongside government borrowing activities, will ultimately shape the direction of money market liquidity in the coming weeks.
