CBN Tightens Grip as Interbank Deficit Hits N4.1 Trillion

For Nigerian businesses and the banking halls that serve them, the cost of cash has just gone up. The Central Bank of Nigeria has tightened its grip on the financial system, pushing the interbank deficit to N4.1 trillion in a deliberate move to combat inflation and stabilise the naira.

The apex bank is betting that a short-term drought in the banking system is a necessary sacrifice to prevent inflation from spiralling further after its recent jump to 15.4 percent. By vacuuming out excess liquidity through high-yield government bills, the CBN hopes to anchor inflation expectations and prevent excess naira from chasing limited foreign exchange.

According to Afrinvest’s Weekly Market and Economic Analysis, system liquidity conditions remain deep in negative territory. While the average system deficit narrowed by 18.7 percent to N4.1 trillion from N5 trillion the previous week, the figures signal a deliberate drought orchestrated by the regulator.

Mop-up operations intensify

Analysts at Afrinvest noted that the 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, the CBN utilised Open Market Operations, offering N600 billion in high-yield OMO bills. Despite the cash scarcity, investor appetite remains strong. The 140-day and seven-day bills saw massive oversubscriptions, with bid-to-cover ratios of 8.6x and 4.3x respectively.

Liquidity divide emerges

A striking development is the growing liquidity segmentation within Nigeria’s banking sector. A few large, cash-rich banks hold massive surpluses while smaller institutions struggle with deficits. Instead of lending to struggling peers in the interbank market, these surplus institutions are choosing to park their money back with the CBN through the Standing Deposit Facility.

Standing Deposit Facility placements averaged N4.1 trillion, showing how surplus institutions maintained significant deposits at the CBN despite the broader system deficit.

Despite the liquidity crunch, interbank funding rates remained stable. The Open Repo rate held steady at 22.0 percent, while the Overnight rate moderated slightly to 22.3 percent — indicating that banks have already adjusted their operations to a high-interest-rate environment.

Sources: Punch, Nairametrics, The Sun, BusinessDay