The Central Bank of Nigeria may face a significant increase in banking-system liquidity this week, with available funds projected to rise to about N8.57tn as Open Market Operations bills mature and government bond coupon payments are made.

System liquidity had already risen to N5.98tn in the week ended September 25, from N2.86tn the previous week, following the repayment of about N2.3tn in OMO bills on September 22. 

A further N2.43tn in OMO bills is expected to mature this week, while bond coupon payments could inject another N164bn into the financial system. If banks retain most of the funds, total liquidity could reach approximately N8.57tn. 

The surplus is already evident in banks’ use of the CBN’s Standing Deposit Facility, with banks placing more than N7tn with the apex bank during the past week.

The development could increase pressure on the CBN to withdraw excess liquidity through further Open Market Operations as it seeks to maintain control of money-market conditions.

The liquidity build-up comes shortly after the CBN cut its Monetary Policy Rate by 350 basis points, from 26.5 per cent to 23 per cent, at its September 22 Monetary Policy Committee meeting. Following the rate cut, the overnight rate fell to 20.77 per cent from 22.24 per cent, while the funding rate declined to 20.40 per cent from 22 per cent. 

The CBN also reduced the Standing Deposit Facility rate to 20 per cent and set the Standing Lending Facility at 23.5 per cent.

Meanwhile, Treasury bill yields have also declined. The average Nigerian Treasury Bills yield fell by 90 basis points to 17.89 per cent, while stop rates at the latest auction stood at 15.50 per cent for the 91-day bill, 15.80 per cent for the 182-day bill and 15.89 per cent for the 364-day bill. 

At its September 24 OMO auction, the CBN offered N1tn worth of bills and received bids totalling N6.1tn, before allotting N2.3tn.

The latest liquidity inflow is therefore expected to provide another test for the CBN as it balances its new lower-interest-rate policy with the need to prevent excessive cash from building up in the banking system.