Central Bank of Nigeria's OMO Operation Drains N3.86tn

On September 22, Nigeria's banking system liquidity fell by N3.86tn, dropping from N5.89tn to N2.03tn, following a fresh open market operation conducted by the Central Bank of Nigeria (CBN). This operation involved the CBN offering N1tn in open market operation (OMO) bills, which absorbed a significant amount of excess cash from banks.

Despite the liquidity reduction, the Nigerian Overnight Financing Rate remained unchanged at 22.00%, while the overnight interbank lending rate increased slightly from 22.19% to 22.30%, indicating upward pressure on short-term funding costs. AIICO Capital noted that money market rates remained relatively stable despite the liquidity squeeze.

The liquidity position may face further pressure, although a forthcoming N57.42bn coupon payment could provide some relief. AIICO Capital anticipates that short-term borrowing costs will remain close to the CBN's target of 22.00%, but warns that the reduced cash buffer increases the risk of rising rates.