The Governor, Central Bank of Nigeria, Olayemi Cardoso. Credit: CBN For the average Nigerian business and the banking halls that serve them, the cost of cash has just increased, JIDE AJIA reports In a strategic move to curb rising food and fuel prices, the Central Bank of Nigeria has tightened its grip on the financial system, pushing the interbank deficit to N4.1tn.
By vacuuming out excess liquidity through high-yield government bills, the CBN is betting that a short-term drought in the banking system is a necessary sacrifice to stabilise the naira and prevent inflation from spiralling out of control after its recent jump to 15.4 per cent.
According to the latest Afrinvest Weekly Market and Economic Analysis, the interbank system remains under immense pressure as the apex regulator prioritises the containment of resurgent inflation and exchange rate volatility. The report reveals that system liquidity conditions, representing the volume of discretionary cash available for banks to lend to one another, remain deep in negative territory.
While the average system deficit narrowed by 18.7 per cent to settle at N4.1tn, down from N5.0tn the previous week, the figures signal a deliberate drought orchestrated by the regulator to mop up excess money supply. Mop-up operations Analysts at Afrinvest noted that this persistent shortfall is not accidental but a core feature of the current fiscal defence strategy.
“The persistent system liquidity shortfall reflects sustained monetary tightening by the CBN, driven by a combination of OMO-induced sterilisation and limited offsetting inflows,” the report stated. To anchor inflation expectations and prevent excess naira from chasing limited foreign exchange, the CBN utilised Open Market Operations.
By offering N600bn in high-yield OMO bills, the CBN effectively mopped up cash from the banking system, locking it away to prevent it from driving up general price levels. Despite the cash scarcity, investor appetite remains voracious. The 140-day and seven-day bills saw massive oversubscriptions, with bid-to-cover ratios of 8.6x and 4.3x, respectively.
“Investor demand was robust, underscoring continued appetite for high-yield government securities despite prevailing liquidity constraints,” the analysis added. Liquidity divide, stability Related News Nigeria buys 61.7m barrels US crude amid bulk exports CBN, NCC to combat SIM-related fraud Wema Bank meets N264.7bn capital threshold, retains licence A striking takeaway from the analysis is the growing liquidity segmentation within the Nigerian banking sector.
This phenomenon occurs when a few large, cash-rich banks hold massive surpluses while smaller institutions struggle with deficits. Instead of lending to their struggling peers in the interbank market, often due to heightened risk concerns, these surplus institutions are choosing to park their money back with the CBN.
The report highlighted that Standing Deposit Facility placements averaged N4.1tn, noting that “these placements highlight continued liquidity segmentation as surplus institutions maintained significant deposits at the CBN despite the broader system deficit.” Surprisingly, despite the liquidity crunch, interbank funding rates remained stable.
The Open Repo rate held steady at 22.0 per cent, while the Overnight rate moderated slightly to 22.3 per cent. Analysts suggest this indicates that the market has fully priced in the CBN’s hawkish stance, meaning banks have already adjusted their operations to a high-interest-rate environment.