CBN Withdraws N1.14tn Through OMO As Banks Reposition Liquidity After Rate Cut

By Johnson Emmanuel 

The Central Bank of Nigeria (CBN) withdrew N3.31 trillion through its latest Open Market Operations (OMO) auction, despite N2.17 trillion in maturing bills returning funds to banks, producing a net withdrawal of N1.14 trillion. Separately, banks reduced overnight placements in the CBN Standing Deposit Facility (SDF) by N941.85 billion, from N4.70 trillion on 6 October to N3.76 trillion on 7 October 2026. The movements follow the Monetary Policy Committee (MPC)’s 22 September reduction of the Monetary Policy Rate (MPR) by 350 basis points to 23 percent.

DECISION HIGHLIGHT

The CBN is lowering its benchmark rate while continuing to absorb excess liquidity through OMO bills. The combination suggests an effort to ease monetary conditions without allowing surplus funds to intensify inflation or foreign-exchange pressure.

DECISION MEMO

The divergence between the policy-rate cut and continued liquidity withdrawal highlights the CBN’s balancing act: reducing the price of money while controlling its availability.

The latest OMO auction attracted N3.51 trillion in bids against an initial N2 trillion offer. Demand concentrated on the 182-day bill, which received N2.69 trillion in bids and N2.67 trillion in allotments at a stop rate of 16.92 percent. The 147-day bill attracted N817.95 billion, with N637.2 billion allotted at 17.22 percent.

Stronger demand for the longer tenor, despite its lower yield, suggests investors were willing to lock funds away for longer. Both stop rates declined slightly from the 29 September auction, indicating some easing in auction yields even as the CBN continued withdrawing liquidity.

The September operations provide context. The CBN sold N17.51 trillion in OMO bills during the month against N10.89 trillion in maturities, a net withdrawal of N6.62 trillion. The latest October operation was smaller but maintained the restrictive liquidity stance. Overnight lending costs also rose by 25 basis points to 22.2 percent.

Meanwhile, the N941.85 billion decline in SDF placements shows banks held less money overnight with the CBN. It does not establish where the funds went. Lending, securities purchases and other funding needs are possible explanations, but the available data do not confirm their destination.

The policy implication is that a lower MPR does not automatically translate into cheaper or more accessible credit. Reserve requirements remain substantial: 45 percent for commercial banks, 16 percent for merchant banks and 75 percent on non-Treasury Single Account public-sector deposits. These constraints, alongside liquidity operations, will influence how quickly monetary easing reaches businesses and households.

DATA BOX

• MPR: Reduced by 350 basis points to 23 percent on 22 September 2026.
• SDF placements: Fell N941.85 billion, or about 20 percent, to N3.76 trillion on 7 October.
• Latest OMO: N3.31 trillion allotted; N1.14 trillion net liquidity withdrawal.
• 182-day bill: N2.67 trillion allotted at 16.92 percent.
• 147-day bill: N637.2 billion allotted at 17.22 percent.
• September OMO net withdrawal: N6.62 trillion.
• Overnight lending rate: Rose 25 basis points to 22.2 percent.
• Earlier liquidity indicators: SDF placements exceeded N6.2 trillion on 29 September; estimated net system liquidity stood at N8.57 trillion that week.

WHO WINS / WHO LOSES

Potential winners: Investors seeking fixed-income placements and the CBN, if liquidity absorption helps contain inflationary and foreign-exchange risks.

Potential losers: Businesses dependent on affordable bank credit if funding costs remain elevated despite the MPR cut.

POLICY SIGNALS

The CBN is pursuing selective monetary easing rather than unrestricted liquidity expansion. The effectiveness of this approach depends on inflation trends, exchange-rate stability and the transmission of lower policy rates into market lending rates.

INVESTOR SIGNAL

Falling OMO stop rates may influence short-term fixed-income pricing, while strong demand for the 182-day bill indicates appetite for medium-term placements. Investors should monitor subsequent auction yields, interbank rates and SDF balances.

RISK RADAR

Persistent liquidity withdrawals could delay credit easing, while excessive liquidity could renew inflation and foreign-exchange pressures. The key uncertainty is whether the CBN can sustain monetary stability while translating its rate cut into lower financing costs for the productive economy.

Johnson Emmanuel is a journalist, covering business, investment, monetary & fiscal policies, CBN, economic affairs and issues of significance to Nigeria’s corporate and public sectors.