Central Bank of Nigeria (CBN) has opened a fresh N1.5 trillion sale of debt instruments to withdraw excess cash from the banking system, as banks’ deposits with the apex bank remain above N5.9 trillion, RaveNewOnline reports.
The auction, scheduled for Tuesday, November 10, is the third Open Market Operations (OMO) exercise by the CBN between November 3 and 10, as the regulator steps up efforts to control the amount of money circulating in the financial system.
The N1.5 trillion offer is divided equally into three maturities of 154 days, 252 days and 329 days, with N500 billion available for each instrument.
OMO securities are short-term financial instruments sold by the CBN to banks and other eligible investors to absorb excess money from the financial system. By selling these instruments, the apex bank takes money out of circulation for a specified period, helping to manage inflation and maintain control over interest rates.
Too much money in the banking system can increase pressure on prices, weaken the effectiveness of monetary policy and fuel demand for foreign exchange.
The latest intervention comes as the Financial Markets Dealers Association (FMDA) estimates that another N2.448 trillion will flow into the banking system this week, largely from maturing government securities.
According to the association’s weekly market report released on Monday, November 9, banking system liquidity rose by 15.36 per cent to N8.505 trillion at the close of business on Friday, November 6, from N7.373 trillion recorded the previous week.
Of the expected N2.448 trillion inflows, N2.298 trillion will come from maturing OMO instruments, while N148.565 billion is expected from Treasury Bills repayments. Corporate bond coupon payments are projected at N1.707 billion.
However, the amount of money entering the banking system will depend on how much the CBN withdraws through fresh OMO sales and how much the government raises through other securities.
Data from the CBN showed that banks had N5.915 trillion deposited at its Standing Deposit Facility (SDF) on Monday, November 9, down from N8.311 trillion on Friday, November 6, following previous OMO settlements.
The SDF is a facility that allows banks to deposit their excess funds with the CBN and earn interest on them instead of lending the money to other financial institutions.
The latest auction follows two major OMO exercises earlier in the month through which the CBN allotted about N5.667 trillion, representing approximately 91.7 per cent of the N6.182 trillion raised throughout October.
At the November 3 auction, the apex bank offered N1.5 trillion but received subscriptions of N3.52 trillion from investors. It eventually allotted N2.95 trillion.
Similarly, the November 6 auction attracted N5.74 trillion in subscriptions against an offer of N1.5 trillion, while the CBN allotted N2.72 trillion.
The strong demand for the instruments reflects investors’ appetite for short-term government securities offering attractive returns.
Meanwhile, the Debt Management Office (DMO) is scheduled to return to the domestic debt market on Wednesday, November 11, with an N800 billion Treasury Bills offer.
The offer comprises N100 billion each for the 91-day and 182-day instruments and N600 billion for the 364-day bill. Settlement is expected on November 12, when N148.565 billion in Treasury Bills maturities will fall due.
The continued use of OMO and Treasury Bills auctions highlights the authorities’ efforts to manage excess cash in the financial system and prevent too much money from chasing available goods and services, a situation that could worsen inflation.
The effectiveness of the measures will depend largely on the volume of fresh securities sold compared with the funds returning to banks through maturing investments.
