The Central Bank of Nigeria absorbed N1.3trn from the financial system in September through its Nigerian Treasury Bills and Open Market Operations auctions, according to a new report by Afrinvest Research.
The report revealed that liquidity in the system was initially boosted by N903.4bn inflow from the Federation Account Allocation Committee.
However, that was largely offset by the CBN’s auctions, which included N622.7bn from NTB sales and N712.5bn from OMO issuances, effectively tightening liquidity.
In a bid to further manage liquidity, the CBN raised its Monetary Policy Rate and Cash Reserve Ratio to 27.25 per cent and 50 per cent, respectively, constraining interbank lending by keeping a portion of bank deposits with the Central Bank.
It noted that despite those restrictive measures, system liquidity closed the month at N253.6bn, recovering from a negative position in August.
The CBN’s actions had notable effects on the money market, as the overnight policy rate and open buyback rates surged by 9.9 percentage points and 8.7 percentage points month-on-month, closing at 28.0 per cent and 28.7 per cent, respectively.
Afrinvest attributed that to increased demand for interbank funds amid the tightening monetary conditions.
During September, the CBN held three rounds of NTB auctions and two rounds of OMO auctions to manage liquidity.
Yields on NTBs closed lower, with the 91, 182, and 364-day tenors dropping to 17.0 per cent, 17.5 per cent, and 20.0 per cent, respectively, compared to August.
Investor demand for longer-tenor bills remained robust as inflation concerns persisted.
On the OMO front, the CBN withdrew N712.5bn to moderate excess liquidity and address inflationary pressures.
Despite those efforts, demand for OMO instruments remained subdued, with only the 362-day tenor recording significant subscriptions.
In the secondary T-bills market, the average yield declined by 29 basis points to 21.5 per cent, driven by strong demand for the 91 and 364-day tenors, where yields fell by 135 and 119 basis points, respectively.
In contrast, the 182-day tenor saw sell-offs, with its yield rising by 166 basis points to 23.5 per cent.
Looking ahead, analysts at Afrinvest anticipated a liquidity boost from upcoming NTB and OMO maturities, amounting to N160.5bn and N325.1bn, respectively.
They expect the CBN to continue its liquidity management strategy through active NTB auctions, while the secondary T-bills market is likely to maintain a bullish tone due to sustained demand.
In August, the CBN auctioned $876.26m to 26 qualified banks under its Retail Dutch Auction System.
