Nigeria’s financial system stayed under heavy cash pressure in January as aggressive tightening moves by the Central Bank of Nigeria drained trillions of naira from the banking space and pushed interbank borrowing rates higher.
Despite a slight improvement compared to December, average system liquidity still closed the month deep in deficit at about N2.4 trillion negative, showing that banks operated under tight funding conditions for most of the period.
Data from market activities show that more than N15 trillion was taken out of the system through different liquidity control tools. These included Open Market Operations (OMO) sales, treasury instrument auctions and large deposits parked by banks with the apex bank.
OMO sales alone accounted for about N8.5 trillion, while banks placed roughly N2.9 trillion at the Standing Deposit Facility. Another N3.7 trillion was raised through primary market issuances. These withdrawals were partly balanced by inflows from maturing OMO bills, repayments and limited lending windows, but not enough to return the system to surplus.
Interbank Rates Climb on Funding Stress
The tight cash environment quickly reflected in the interbank market, where the cost of short-term funds rose sharply. Key lending benchmarks – the Open Buy Back and Overnight rates – climbed to around 26 percent, indicating sustained pressure on bank liquidity positions.
Market operators said funding remained expensive throughout the month as institutions scrambled to meet settlement and regulatory obligations.
Treasury Bills See Strong Demand
During the month, the apex bank conducted two Nigerian Treasury Bills auctions covering 91-day, 182-day and 364-day tenors, with total offers of about N2.4 trillion.
Investor demand came in strong at nearly double the offer size, with the one-year bill attracting the highest interest. Total allotment at the auctions stood slightly above N2 trillion.
Secondary market treasury bill yields also moved upward, with average returns rising to about 18.5 percent. Selling pressure was more visible in short- and mid-term instruments, while longer-dated bills traded relatively steady amid expectations that tight liquidity may persist.
OMO and Bond Market Mixed
Liquidity mop-up efforts were further reinforced through multiple OMO auctions during the month, as the central bank continued efforts to control excess naira and stabilise foreign exchange flows.
In the bond segment, the Debt Management Office opened the year with fresh reopenings of FGN bonds across 2031, 2034 and 2035 maturities, offering N900 billion. Subscriptions were strong, with investors showing greater preference for longer-dated papers.
Unlike treasury bills, the secondary bond market recorded mild bullish sentiment. Average bond yields edged lower overall as portfolio managers positioned for potential rate moderation if inflation continues to ease, though yields at the long end of the curve ticked slightly higher.
Analysts say market direction in the coming months will depend largely on inflation trends, fiscal borrowing needs and the pace of further monetary tightening.
