Key Points

• CBN sold N7.85tn in OMO bills this month.

• High yields drew both banks and foreign investors.

• The sale helps manage Nigeria’s excess system liquidity.

The Central Bank of Nigeria (CBN) sold about N7.85 trillion in Open Market Operation (OMO) bills in November. This was because there was too much money in the financial system and banks and foreign portfolio investors were very active.

The November mop-up was 12.30% more than the October mop-up, when N6.99 trillion was sold. This shows how aggressively the apex bank is managing liquidity.

The financial system still had too much cash, most of which was parked in the CBN’s Standing Deposit Facility (SDF), which offered interest rates that were much higher than the average Treasury bill return.

Deposit money banks (DMBs) used the facility a lot, making 24.50% on money that was sitting around because there wasn’t much demand for loans because of market uncertainty.

The central bank offered securities across standard tenors to keep the market’s funding level moderate, with an extra N1.1 million coming in from expired OMO bills. Eligible participants, such as domestic banks and foreign investors, were very interested and signed up for more than one auction.

Banks and investors are pushing up demand for short-term tenors

OMO rates on short-dated naira assets stayed high all month, so new tenors were added to keep things stable. Analysts said that these steps helped the CBN send extra money where it needed to go and deal with possible inflationary pressures.

A market strategist said, “The level of oversubscription shows that the market wants to lock in high yields in a low-lending environment.” The aggressive approach was meant to keep too much liquidity from flowing into the financial system, which could change interbank rates and make the money market less stable.

It is expected that liquidity problems will continue in December

The market expects more liquidity spikes in December. The financial system ended the day at N1.96 trillion, before receiving N450 billion from maturing fixed-income instruments, including a bond coupon payment of N10.2 billion due on December 2.

Analysts think that liquidity will stay high without the CBN’s ongoing mop-up operations, which will put pressure on short-term rates. The central bank’s actions in November, on the other hand, show that it is serious about strategically managing cash levels, keeping the market stable, and stopping excess funds from causing asset bubbles.

Banks and foreign investors are still the most active participants in OMO auctions. Market participants expect this trend to continue in the last month of the year, with the apex bank ready to take strong action to keep liquidity conditions stable.