Excess funds remain elevated above N8tn, raising concerns over inflation and market stability….
Nigeria’s financial system is still awash with cash despite a massive liquidity mop-up by the Central Bank of Nigeria, highlighting the scale of excess funds circulating within the banking sector.
Fresh midweek data from the apex bank shows that system liquidity remained above N8 trillion, even after a N2.36 trillion Open Market Operations (OMO) auction conducted on March 23, 2026.
The development points to strong underlying inflows that continue to offset the central bank’s aggressive efforts to tighten monetary conditions.
Short-Lived Liquidity Squeeze
The OMO intervention initially appeared effective, sharply reducing opening balances to N85.04 billion at the start of the week down from over N8 trillion previously.
However, the impact proved temporary.
Within days, liquidity rebounded significantly, climbing to about N7.98 trillion at the Standing Deposit Facility (SDF) window by March 25, underscoring the resilience of excess cash in the system.
Typically, such OMO operations are designed to:
- Absorb surplus liquidity
- Push interest rates higher
- Reduce speculative pressure in the foreign exchange market
Yet, the quick rebound suggests deeper structural liquidity inflows that remain difficult to contain.
Banks Park Funds at CBN Window
A major driver of the elevated liquidity is banks’ continued reliance on the Standing Deposit Facility, where surplus funds are parked for risk-free returns.
Data shows:
- SDF balances stood at 17 trillion at the start of the week
- Dropped briefly to 59 trillion
- Rose again to nearly N8 trillion within days
The trend reflects strong preference among banks for the CBN’s overnight deposit window, which offers attractive returns of around 22.28 per cent.
Why Liquidity Remains High
Analysts attribute the persistent liquidity glut to:
- Large inflows from maturing government securities
- Limited absorption capacity from OMO auctions
- A build-up of idle funds within the banking system
Recent inflows include maturities worth over N1.44 trillion and N579 billion, further swelling available cash.
Risks to Economy and Markets
The continued abundance of liquidity poses several risks:
- Interest rate instability, as excess funds suppress yields
- Inflationary pressures, driven by increased money supply
- Foreign exchange speculation, as idle funds chase currency opportunities
Experts warn that unless effectively managed, the liquidity surge could complicate the central bank’s broader monetary policy objectives.
More Aggressive Action Likely
The persistence of excess liquidity suggests that the CBN may need to sustain or even intensify its intervention strategy.
Analysts say this could mean:
- More frequent OMO auctions
- Larger liquidity mop-ups
- Continued reliance on monetary tightening tools
For now, the data signals that Nigeria’s financial system remains highly liquid, with the central bank facing an ongoing challenge to bring conditions under control.
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