CBN mops up N3.3tn despite fresh liquidity inflow

The Central Bank of Nigeria withdrew N3.31 trillion from the banking system through its latest

Open Market Operations auction, even as N2.17tn from maturing bills returned to banks.

The result was a net liquidity withdrawal of about N1.14tn, as the CBN continued its efforts to reduce excess cash in the financial system.

Investors submitted N3.51tn in bids for the auction, against the N2tn initially offered by the apex bank.

The CBN eventually allotted N3.31tn, with demand strongest for the longer-term 182-day bill.

The 182-day bill attracted N2.69tn in bids against N1tn offered. The CBN allotted N2.67tn at a stop rate of 16.92 per cent.

By comparison, the 147-day bill received N817.95bn in bids against N1tn on offer. The CBN

allotted N637.2bn at a stop rate of 17.22 per cent.

The stronger demand for the 182-day bill suggests investors were more willing to lock their money away for longer, even though the return was slightly lower than that of the shorter bill. Both stop rates fell slightly from the previous auction on 29 September.

The latest auction comes after the CBN carried out large-scale liquidity withdrawals in

September.

The apex bank sold N17.51tn worth of OMO bills during the month, while N10.89tn matured. This left a net withdrawal of about N6.62tn from the banking system.

The 29 September auction alone saw the CBN sell N4.69tn of OMO bills against N2.43tn in maturities.

The October auction was smaller than that September operation, but it still resulted in a sizeable net withdrawal.

The move shows that the CBN is continuing to use OMO bills to control excess liquidity even after cutting its benchmark interest rate.

The liquidity squeeze also affected short-term borrowing costs.

The overnight lending rate rose by 25 basis points to 22.2 per cent.

However, there is still significant liquidity in the banking system. More than N6.2tn was placed with the CBN through the Standing Deposit Facility on 29 September, while estimated net system liquidity stood at N8.57tn that week.

The latest OMO operation therefore reflects that the CBN is lowering its main policy rate while, at the same time, removing excess funds from the financial system.

The Monetary Policy Committee cut the Monetary Policy Rate by 350 basis points to 23 per cent on 22 September.

The combination of lower policy rates and continued OMO sales suggests the CBN wants to make borrowing conditions easier over time without allowing excess liquidity to build up and create fresh pressure on inflation and the foreign exchange market.

Source: https://punchng.com/cbn-mops-up-n3-3tn-despite-fresh-liquidity-inflow/