Aggressive liquidity mop-up raises concerns over lending, growth, and economic expansion….
The Central Bank of Nigeria has withdrawn a staggering ₦4.11 trillion from the financial system within just one week, underscoring its aggressive push to rein in inflation and stabilise the economy.
The liquidity squeeze was executed through two major Open Market Operations (OMO) auctions held on March 23 and 27, marking one of the most significant short-term cash withdrawals in recent times.
Despite the scale of the intervention, financial system data suggests that excess liquidity remains persistent, with banks and discount houses opening the week with balances as high as ₦716 billion.
How the cash was mopped up
Breakdown of the central bank’s actions shows:
- ₦2.357 trillion withdrawn on March 23
- ₦1.753 trillion withdrawn on March 27
- Total sterilisation: ₦4.11 trillion
However, liquidity injections of about ₦2.99 trillion partially offset the tightening, leaving a net withdrawal of roughly ₦1.13 trillion.
At the same time, banks continued to park massive funds with the apex bank through the Standing Deposit Facility (SDF), taking advantage of high interest rates.
Daily deposits surged into trillions:
- ₦8.17trn (Monday)
- ₦6.59trn (Tuesday)
- ₦7.97trn (Wednesday)
- ₦8.55trn (Thursday)
- ₦6.80trn (Friday)
With SDF rates hovering above 22%, banks are increasingly incentivised to earn risk-free returns rather than lend to businesses.
Tightening vs growth: a growing debate
The CBN’s strategy reflects a continued focus on monetary tightening, using tools such as OMO auctions, Treasury bills, and the SDF to absorb excess cash and tame inflation.
But the approach is raising red flags among analysts, who warn that aggressive sterilisation could come at a cost.
Financial experts argue that while controlling inflation is important, restricting liquidity too heavily may:
- Reduce credit to the private sector
- Increase borrowing costs
- Slow industrial and economic growth
Liquidity still flooding the system
Even with repeated interventions, liquidity levels remain elevated.
- Over ₦13.4 trillion was mopped up in January alone
- Banking system liquidity still exceeded ₦8 trillion by March
- Inflows from maturing securities continue to replenish cash levels
This cycle suggests the apex bank may need to sustain frequent and large-scale interventions to keep inflation and exchange rate pressures under control.
The bigger challenge: where the money goes
Analysts say the real issue is not just excess liquidity but how funds are utilised.
If channelled into productive sectors like:
- Manufacturing
- Infrastructure
- Agriculture
Liquidity can support growth without necessarily triggering runaway inflation.
But when funds flow into speculative activities, they can worsen price instability without boosting real output.
Balancing act for a $1tn economy goal
Nigeria’s ambition to become a $1 trillion economy by 2030 depends heavily on maintaining the right balance between price stability and growth.
While the CBN’s tightening measures may help control inflation in the short term, prolonged liquidity constraints could:
- Discourage investment
- Limit business expansion
- Slow job creation
A critical policy crossroads
The latest moves highlight a difficult reality: Nigeria’s monetary authorities are walking a tightrope between fighting inflation and sustaining growth.
How that balance is managed in the coming months could determine whether the economy stabilises or struggles under the weight of its own policy contradictions.
