CBN’s Aggressive OMO Auctions Slash Rates as Liquidity Tightens

The Central Bank of Nigeria (CBN) staged three Open Market Operation (OMO) auctions last week, drawing massive investor interest but leaving the financial system grappling with tighter liquidity and higher short-term funding costs.

At the first auction, the apex bank offered ₦600 billion across 210-day and 350-day maturities. Investor appetite was overwhelming, with subscriptions hitting ₦4.87 trillion—over 82 per cent skewed toward the longer tenor. Yet, no allotments were made, signaling CBN’s resistance to prevailing bid levels.

By Thursday, demand surged further. Another ₦600 billion was offered across 208-day and 348-day bills, attracting ₦5.93 trillion in bids, a 22.8 per cent jump from the earlier auction. The bank allotted ₦3.79 trillion, with stop rates falling sharply to 17.20 per cent from 19.38 per cent on the 208-day paper and 17.25 per cent on the 348-day bill.

On Friday, the CBN repeated its ₦600 billion offer across 207-day and 354-day maturities. Subscriptions totaled ₦2.56 trillion, but no sale was recorded on the shorter tenor. The 354-day bill, however, cleared at 17.25 per cent, with ₦2.11 trillion allotted—far above the initial offer size.

Despite inflows of ₦2.14 trillion from maturing OMO bills, system liquidity contracted sharply, closing at ₦1.87 trillion from ₦2.78 trillion the previous week. In total, the CBN absorbed ₦5.89 trillion across two of the three auctions, underscoring its aggressive sterilization drive.

The liquidity squeeze fed directly into money market rates. Overnight lending spiked to 26.36 per cent from 22.79 per cent, while the repo rate climbed to 26.07 per cent from 22.50 per cent. Analysts say the apex bank’s strategy reflects a delicate balancing act—curbing inflationary pressures by draining excess liquidity, while cutting stop rates to ease borrowing costs at the long end of the curve.

The auctions highlight the paradox of Nigeria’s monetary policy: investors continue to chase government paper in trillions, but the CBN’s tightening stance is pushing short-term rates higher even as it lowers stop rates to anchor yields. The outcome leaves the market bracing for further volatility as liquidity management remains the central theme of monetary operations.