CBN’s renewed liquidity squeeze strains interbank market

The continued intervention of the Central Bank of Nigeria (CBN) has triggered a liquidity squeeze in the interbank segment of the financial market, dealers told BusinessDay.

The interbank market liquidity declined by 57.69 percent from N78 billion on June 20 to N33 billion the next day, financial market dealers said.

However, the liquidity rose to N445.0 billion as of Friday due to about N300 billion settlement for retail inter-bank retail Secondary Market Intervention Sales auction.

The CBN mops up liquidity via Cash Reserves Ratio (CRR) debits, Open Market Operation (OMO) auction and special bills.

What this means, according to analysts, is that borrowing costs will be high.

“Current liquidity strain is being fuelled by the constant mop ups by the CBN via CRR debits, OMO auctions, special bill issuance,” Ola Oladele, vice-president, global market at Parthian Partners Limited, said.

CRR is the percentage of total deposits which a bank must keep as reserves with the CBN.

OMO simply means the buying and selling of government security, which enables a central bank to control the supply of money in the banking system.

On June 2, 2022, the CBN mopped up a total of N40 billion via OMO auction.

The central bank has been debiting banks for CRR and the most recent was N102 billion debited at the beginning of the month.

“The OMO maturities have thinned out and there hasn’t been coupon payment this month so nothing is really bringing cash in,” Oladele said.

She said the CBN intervention, which is aligned with its tightening stance at the last Monetary Policy Committee (MPC) meeting, will keep the market tight and interbank borrowing rates elevated.

Last month after the MPC meeting, the CBN raised its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 150 basis points to 13 percent, the first time in six years.

The apex bank retained the asymmetric corridor around the MPR at +100 /-700 basis points, CRR at 27.4 percent, and Liquidity Ratio at 30 percent.

Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said there are not many bills maturities this quarter and this impacts the liquidity system.

In the Nigerian Treasury Bills (NTBs) issuance programme calendar, the CBN plans to issue a total of N1.2 trillion treasury bills in the third quarter of 2022 as the same amount will be maturing between June 2022 and August this year.

The breakdown of the T-bills programme to be issued in the next three months, which also represents the amount that would mature during the same period, consists of a total of N33.4 billion for 91-day tenor, N21.9 billion for 182-day tenor and N1.17 trillion for 364-day tenors.

The CBN issues Treasury Bills twice in a month to help the Federal Government fund its budget deficit, support banks in managing liquidity in the system and curb inflation.

The NTBs as defined by the CBN are short-term securities issued at a discount for a tenor ranging from 91 to 364 days, such that the income received is the difference between the purchase price and the amount received at maturity or prior to the sale.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.