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By Chinwendu Obienyi
Nigeria’s interbank money market remained awash with liquidity last week, but the Central Bank of Nigeria (CBN) sustained an aggressive liquidity mop-up stance to keep monetary conditions tight.
The move is part of the apex bank’s tightening monetary policy aimed at taming inflation, which remains high; stabilising the exchange rate by reducing speculative pressure on the naira and curbing unproductive lending and managing short-term liquidity fluctuations.
However, despite sizeable inflows from maturing securities, banks redirected an estimated N1.5 trillion-N2 trillion to the Standing Deposit Facility (SDF) window, Daily Sun investigations revealed at the weekend.
This is equivalent to more than half of residual system liquidity not absorbed by CBN auctions. The strong preference for the SDF highlights both the system’s cash-rich posture and continued caution among deposit money banks in extending credit amid elevated interest rates and tightening monetary conditions.
The SDF is a monetary policy tool used by the apex bank to absorb excess liquidity (i.e, surplus cash) from the banking system.
It allows deposit money banks (DMBs) and discount houses to park their idle funds overnight with the CBN and earn interest on those placements.
The market opened the week at N50.12 trillion, buoyed by N250 billion in OMO maturities and N230.66 billion in Treasury bill maturities. However, owing to the apex bank intensifying liquidity management operations, liquidity gradually tapered to N3.39 trillion in one week, representing the 4th consecutive week of settling in the negative territory.
According to market insiders, the negative liquidity position was largely influenced by increased activity at the SDF window, where returns of 24.5 per cent (MPR less 250 basis points) offered a modest premium to long-dated Treasury bill yields, now below 20 per cent. This yield differential prompted banks and discount houses to rotate idle funds into the SDF, curtailing interbank lending volumes and reinforcing the CBN’s control over short-term liquidity.
Despite the tightening measures, short-term funding pressures remained moderate. The Overnight Nigerian Interbank Offered Rate (NIBOR) eased marginally by 2bps to 24.86 per cent, while 1-month and 3-month tenors each slipped by 1bp. The 6-month rate saw a steeper 18bps drop, reflecting lingering liquidity support in the short-term segment while the Overnight (OVN) interbank rate also stayed elevated but stable at 25.0 per cent, up only 8bps week-on-week (w/w).
At the OMO auction, the apex bank offered N600 billion but recorded an overwhelming N4.4 trillion in bids, reflecting strong investor appetite. Eventually, N3.0 trillion was allotted, with stop rates clearing at 19.45 per cent (168-day) and 19.49 per cent (196-day) papers, signaling a cautiously tight stance despite the liquidity surge.
Similarly, the NTB auction on October 8, 2025, attracted intense participation, as the CBN offered N570 billion across the 91-, 182-, and 364-day tenors but received N1.06 trillion in total subscriptions. Demand was strongest at the long end, with the 364-day paper absorbing N986.33 billion and clearing at a stop rate of 15.77 per cenr, down 130bps from the previous week. Shorter tenors cleared at 15.00 per cent (91-day) and 15.25 per cent (182-day), showing muted investor interest.
Market sources told Daily Sun that liquidity conditions are expected to remain positive, driven by maturing OMO bills and bond coupon inflows.
“However, the CBN is likely to sustain its open market sterilization to maintain rate stability and curb inflationary build-up. Analysts project mild upward pressure on short-term yields as excess liquidity is absorbed, while SDF placements are expected to stay elevated above N1.5 trillion daily. The Overnight (OVN) rate is anticipated to hover between 24.5 per cent and 25.5 per cent, reflecting a balanced yet cautious money market environment”, one market source who did not want his name in print said.
Cordros Research in its weekly note said, “In the event of no mop-up activity by the CBN next week, we expect liquidity to remain sturdy, supported by N37.09 billion in FGN bond coupon inflows. As a result, the OVN rate is likely to hold near current levels”.
Also speaking, analysts at Afrinvest said, “Overall, the market continues to reflect a delicate balance between liquidity management and yield positioning. With naira stability and a gradual dovish tilt in monetary tone, investors are clearly tilting toward medium- to long-dated instruments for higher real returns, suggesting confidence is quietly returning to the fixed-income space”.
