CBN's Aggressive Liquidity Management Strategy in January
The Central Bank of Nigeria (CBN) intensified its monetary policy efforts in January 2026, selling approximately N8.5 trillion worth of Open Market Operation (OMO) instruments to financial institutions and investors. This substantial move was designed to tighten liquidity within the banking system, curb inflationary pressures, and support the stabilization of the Nigerian naira.
Impact on System Liquidity and Interbank Rates
According to analysis from Afrinvest, the aggressive OMO sales significantly contributed to negative system liquidity, with average balances closing the month at a deficit of N2.4 trillion. Despite inflows from maturing OMO bills and other repayments, liquidity conditions remained tight throughout January, reflecting the CBN's commitment to maintaining restrictive monetary conditions.
The scarcity of cash pushed interbank lending rates sharply higher. The Open Buy Back Rate (OPR) and Overnight (OVN) rate both increased by 3.6 percentage points month-on-month, reaching 26.1% and 26.4% respectively. This tightening environment has forced commercial banks to focus more intently on funding and balance sheet management, as cash availability became increasingly constrained.
Broader Monetary Policy Context
The CBN's approach marks a return to more orthodox monetary policy tools after years of excess liquidity driven by fiscal financing and various intervention programs. By issuing high-yield OMO bills, the apex bank aims to absorb surplus naira liquidity while reinforcing its dedication to price stability and exchange rate management.
In recent auctions, the CBN offered OMO instruments totaling N600 billion across various maturities, attracting substantial subscriptions from market participants. At one auction, subscriptions reached N5.92 trillion, with the bank eventually allotting N3.78 trillion at stop rates between 17.02% and 17.25%.
Expert Perspectives and Economic Implications
Financial analysts have noted that the scale of OMO sales has reshaped money market dynamics. Victor Chiazor, Head of Research at FSL Securities, observed that these actions reflect the CBN's preference for market-based tools over administrative controls. However, he emphasized that lasting exchange rate stability would require complementary fiscal discipline and improved dollar inflows from both oil and non-oil sectors.
Economics professor Sheriffdeen Tella cautioned that sustained liquidity tightening must be carefully monitored to avoid excessive credit contraction that could harm economic growth. Similarly, Paul Alaje, Chief Economist at SPM Professionals, noted that while OMO auctions can help manage inflation and reduce pressure on the naira, the CBN must ensure that credit flows to the real sector are not unduly constrained.
Potential Benefits and Future Outlook
Beyond domestic liquidity management, analysts suggest that high OMO yields could attract foreign portfolio inflows seeking carry trade opportunities, potentially supporting the foreign exchange market. This aligns with recent positive developments, including the naira's 3.6% appreciation in January and Nigeria's gross external reserves surpassing $46 billion.
The CBN's message appears clear: by withdrawing N8.5 trillion from the financial system in a single month, the apex bank has signaled its readiness to tolerate tight financial conditions in pursuit of broader macroeconomic stability. Banks and investors are now adjusting their expectations around funding costs and credit availability as this new monetary policy regime takes shape.
