The Central Bank of Nigeria (CBN) has ramped up its liquidity mop-up operations by 16-times within a year, draining excess cash that commercial banks have continued to park with the regulator through its Standing Deposit Facility (SDF).
Data from the CBN show that Open Market Operations (OMO) sales rose by 1,607.03 percent year-on-year to N8.53 trillion in January 2026, an increase of over N8 trillion compared with N500 billion recorded in the corresponding period of January 2025.
In 2025, the CBN mopped up about N33.12 trillion from the financial system through Open Market Operations and other liquidity management tools as part of efforts to rein in inflation.
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Nigeria’s money supply growth slowed to a five-year low of 12.83 percent in November 2025, following aggressive liquidity mop-up measures by the apex bank aimed at curbing inflationary pressures.
Headline inflation also maintained its downward trend, easing to 15.15 percent in December 2025 from 17.33 percent in November, according to the CBN data, reflecting the impact of tighter monetary conditions.
On repayments, the CBN returned N5.62 trillion to OMO investors as of January 2026, representing an increase of 665.85 percent compared with N734.84 billion repaid in January 2025.
Commercial banks have continued to lodge excess liquidity with the CBN through the SDF window, with placements rising to N52.59 trillion in January 2026. This represents a 460.06 percent increase from N9.39 trillion recorded in the same period of January 2025, according to CBN data.
In contrast, banks borrowed significantly less from the regulator during the period, as activity at the Standing Lending Facility (SLF) declined sharply. Borrowings from the CBN fell to N1.09 trillion, an 88.13 percent drop from N9.16 trillion recorded in January 2025.
Tomisin Tunde-Abatan, an analyst at Rhodium Capital Limited, said system liquidity has remained elevated, with balances reaching as high as N6 trillion. He attributed this to large Federation Accounts Allocation Committee (FAAC) inflows, significant instrument maturities, and other statutory payments. According to him, such excess liquidity risks undermining monetary tightening efforts and could reignite inflationary pressures. As a result, the CBN has leaned more heavily on OMO auctions as a sterilisation tool to absorb surplus funds and stabilise short-term interest rates.
He added that broader fiscal pressures have also played a role. The government’s financing of the 2025 budget alongside preparations for the 2026 fiscal cycle implies higher domestic funding needs, which has increased the supply of local debt instruments, including OMO bills.
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Tunde-Abatan noted that recent comments by Nigeria’s Finance Minister, Wale Edun, suggest the government is not planning to access the Eurobond market in the near term. With limited external borrowing, a larger share of funding is expected to be sourced domestically, reinforcing higher OMO issuance.
On the implications, he said tighter OMO activity supports liquidity control and the fight against inflation but could keep money market rates elevated and raise borrowing costs for banks and the private sector. For investors, however, it expands access to higher-yield, short-term instruments. Overall, the trend reflects a stronger emphasis on domestic liquidity management and local funding rather than reliance on external debt.
Ayodeji Ebo, managing director and chief business officer at Optimus by Afrinvest, earlier said the sharp rise in OMO sales reflects the CBN’s determination to manage excess liquidity, curb inflation, and stabilise the exchange rate.
According to him, higher OMO issuances help attract foreign investors and influence interest rates, with implications for borrowing costs across the economy. “It signals a tightening monetary stance aimed at stabilising the economy, although its effectiveness still depends on broader fiscal policies and external conditions,” he said.
A report by Parthian Partners showed that system liquidity improved to open in a credit balance of N2.47 trillion on Thursday, reflecting a modest N221bn increase. Interbank rates remained low, with overnight rates easing by 3 bps. “We expect rates to hover around current levels in the near term,” analysts at Parthian Partners said.
Analysts at Quest Merchant Bank said banks continued to actively utilise the SDF corridor, driven by the attractive SDF rate of about 23.5 percent, which offers a compelling risk-free return. This remains significantly above the approximately 18.36 percent stop rate on the 364-day Nigerian Treasury Bill at the most recent auction.
CBN data indicate that total placements at the SDF window surged to N52.6 trillion, compared with N1.3 trillion recorded in the prior year. During the same period, activity at the SLF window stood at N1.1 trillion, resulting in a sizeable net SDF surplus position of N51.5 trillion.
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According to analysts at Quest Merchant Bank, ample system liquidity supported strong investor demand at primary market auctions, even as the Federal Government stepped up domestic debt issuance. For context, combined sales from OMO, Treasury Bills, and Federal Government bond auctions in January amounted to N12.3 trillion, exerting notable pressure on liquidity conditions.
They noted that this strain was partly offset by inflows from maturities totalling N8.4 trillion, resulting in net actual borrowing of N3.9 trillion for the month. Reflecting the impact of the CBN’s liquidity management actions, average overnight and funding rates increased month-on-month by 17 basis points to 22.67 percent and 22.92 percent, respectively.
System liquidity fluctuated widely during the month, ranging from a high of N6.1 trillion to a low of N560 billion. By month-end, average system liquidity settled at N2.5 trillion, Quest report indicated
Despite ongoing liquidity management operations by the CBN, the analysts expect funding conditions to remain broadly supportive in the near term, aided by elevated SDF rates and steady inflows from maturing instruments.
