Nigeria’s banking sector is experiencing a seismic shift, a cash surge triggered by Open Market Operation (OMO) repayments. Deposits held by banks with the Central Bank of Nigeria (CBN) shot up a staggering 150% recently. This event unfolded right after the Monetary Policy Committee (MPC) tweaked the rules on what banks earn when they park funds at the CBN. Is this a coincidence, or are we witnessing the ripple effects of a deliberate strategy?

OMO, for those unfamiliar, is the CBN’s primary tool for managing liquidity, curbing inflation, and stabilizing interest rates. Think of it as the central bank fine-tuning the money supply by buying and selling government securities. Tuesday’s massive OMO repayments injected a considerable amount of cash into the system, immediately impacting how banks interact with each other.

The numbers tell the story: Banks’ deposits with the CBN ballooned to N2.64 trillion. System liquidity expanded by over a trillion Naira. This deluge of cash then pushed short-term interest rates downwards. The Overnight Policy Rate (OPR) and Overnight Rate (ONR) both experienced significant dips. The expectation is for interbank rates to remain at these lower levels.

It’s easy to look at these figures in isolation. But Ayokunle Olubunmi of Agusto & Co. raises a vital point. He suggests this surge might be partly coincidental. After all, the MPC largely kept monetary policy parameters unchanged. He also notes the adjusted asymmetric corridor aims to discourage banks from simply hoarding cash at the CBN.

The MPC’s recent decision altered the corridor around the Monetary Policy Rate (MPR). The goal: tighter control over interest rate movements. The CBN released N1.1 trillion through OMO repayments the same day as the MPC announcement. A key question arises: have the CBN’s usual debits, which occur bi-weekly, been factored into the calculations?

Looking at the OMO bill secondary market reveals a broad decline in yields. The average yield across the curve eased. Short-term and medium-term yields fell, while long-term maturities saw a slight increase. Specifically, the OMO bill for February 2026 saw the most buying interest.

The MPC stated its decision to maintain the monetary policy stance. Adjusting the corridor helps preserve progress made on inflation. The committee underscored that it will continue using a data-driven method in evaluating economic trends and formulating future policy. This suggests a cautious approach.

Here’s where it gets interesting. Comercio Partners highlights that the new corridor lowers the Standing Lending Facility (SLF) rate, making it cheaper for banks to borrow from the CBN. Simultaneously, the Standing Deposit Facility (SDF) rate has been reduced. This reduces the incentive for banks to deposit surplus funds with the CBN. The underlying purpose? To prod banks into lending more, hopefully spurring real-sector growth. Essentially, the CBN is trying to nudge banks away from risk-free deposits and toward riskier, but potentially more rewarding, lending.

Ayodele Akinwunmi from United Capital Plc proposes an alternative viewpoint. He suggests banks might have significant liquidity from maturing investments. These investments need to be deposited with the CBN.

Having seen similar events occur over my years in the industry, I’m reminded of a few things: One, central banks rarely act in isolation. Every move has intended – and unintended – consequences. Two, the Nigerian financial system, like any other, is a complex web of interconnected parts. A change in one area inevitably affects others. Three, despite the MPC’s intentions, human behavior is a powerful force. Banks might find ways to circumvent the new rules if it benefits them.

Still, this situation underscores a recurring challenge for the CBN: how to effectively manage liquidity while encouraging lending to boost the economy. The CBN wants banks to put their money to work, but that also requires a conducive environment for businesses to borrow and invest.

It’s worth noting that these measures are happening against a backdrop of broader economic challenges, including ongoing inflationary pressures and currency fluctuations. The CBN’s moves need to be seen in this wider context.

This situation demands a balanced perspective. Is the CBN’s strategy working? Too early to say definitively. We need to monitor lending patterns, inflation rates, and overall economic growth in the coming months. It’s entirely possible that this liquidity surge is a temporary phenomenon. Or, it may be the start of a new chapter in Nigeria’s monetary policy. Only time will tell.

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