CBN Lowers Interest Rate, Yet Yields Remain Above 17%

The Central Bank of Nigeria (CBN) reduced its Monetary Policy Rate from 26.5 percent to 23 percent in September, a 350-basis-point cut aimed at easing monetary policy. However, this reduction has not led to a corresponding decline in yields in the fixed-income market, where banks continue to access securities with returns exceeding 17 percent.

The CBN's adjustments included setting the Standing Lending Facility rate at 23.5 percent and the Standing Deposit Facility rate at 20 percent, while maintaining the Cash Reserve Requirement for deposit money banks at 45 percent. The October 22 Open Market Operations (OMO) auction revealed that yields have not decreased as expected, with the CBN allotting N2.628 trillion in OMO bills.

The 138-day instrument cleared at 17.63 percent, and the 180-day bill recorded a stop rate of 17.14 percent. This indicates that the initial yield decline following the policy shift has not been sustained.

The CBN continues to manage liquidity in the banking system through these instruments.