Lagos: A financial expert, Dr. Tunde Awesu, has stated that the N930 billion decline in banking system liquidity has not significantly increased short-term interest rates, suggesting that the financial system maintains adequate liquidity. Awesu, President of the Metropolitan School of Business and Entrepreneurship, shared this insight during an interview with the News Agency of Nigeria in Lagos while evaluating the recent liquidity tightening in the banking system.
According to News Agency of Nigeria, data from the Central Bank of Nigeria (CBN) indicated that on August 11, N2.48 trillion entered the banking system due to the maturity of Open Market Operations (OMO) securities, elevating system liquidity to N6.81 trillion. However, recent money-market data revealed a subsequent liquidity decline of N930 billion, bringing the total to N3.66 trillion after the settlement of a Treasury Bills auction. As a result, the overnight lending rate saw a slight increase of two basis points, reaching 22.20 percent from 22.18 percent, while the Open Buy Back (OBB) rate remained constant at 22.00 percent.
Awesu remarked that the minor adjustments in short-term rates imply that the liquidity withdrawal was more of a correction of excess liquidity rather than an acute funding squeeze. He explained that the substantial liquidity injection in August was due to the CBN’s retirement of some treasury instruments, which significantly boosted money market liquidity. The recent operations were aimed at rectifying the excess liquidity in the system.
He elaborated further that the two-basis-point change in the overnight rate was minimal relative to the volume of liquidity withdrawn, indicating that the financial system still possesses sufficient liquidity to prevent a significant impact on overnight rates. The unchanged OBB rate at 22 percent further supports the notion that liquidity conditions remain relatively stable.
The CBN’s Open Market Operations are reportedly achieving their objectives of managing liquidity, stabilizing interest rates, and moderating inflation. Dr. Awesu noted that the current development is unlikely to lead to immediate increases in borrowing costs for businesses, investors, and the public, especially with the Monetary Policy Rate unchanged. However, he cautioned that continuous liquidity tightening through OMO could eventually elevate short-term interest rates and raise borrowing costs.
The CBN persists in using OMO and Treasury Bills operations as part of its liquidity-management strategy, with recent auctions drawing strong investor demand.