In October, the Central Bank of Nigeria sold ₦6.182 trillion worth of new Open Market Operation bills, while older bills worth ₦9.051 trillion matured.
The difference of about ₦2.87 trillion flowed back to the banks.
September was the opposite. The CBN sold ₦17.51 trillion in OMO bills that month, while ₦10.89 trillion matured, which pulled about ₦6.62 trillion out of the banking system. September therefore drained cash, and October returned a large part of it.
OMO is a tool the CBN uses to control how much naira the banks hold. When the CBN sells short-term bills to banks, cash leaves the system. When those bills mature and the CBN pays the banks back, cash returns. In October, more bills matured than were sold, so cash came back.
Banking system liquidity, which is the spare cash banks hold, rose by 56.75 per cent to ₦7.373 trillion in October from ₦4.703 trillion in September, according to the Financial Markets Dealers Association. That is about ₦2.67 trillion more cash in one month.
Even so, the rates banks charge each other for overnight loans barely moved. One stayed at 20 per cent, while the other eased only slightly to 20.38 per cent. The CBN’s benchmark rate remains 23 per cent after September’s cut.
In simple terms, banks have more money, but borrowing still costs about the same.
The average return on Treasury bills fell to 17.88 per cent on Monday. Returns on the 91-day, 182-day and 364-day bills all dipped slightly, to between 15.40 and 15.80 per cent.
Supply is the main reason. Last week, the Debt Management Office (DMO) offered ₦800 billion in Treasury bills, and investors asked for ₦1.91 trillion. The DMO sold only ₦71.16 billion, which is about 9 per cent of what it offered.
When many buyers chase a few bills, prices rise and returns fall. Banks and funds have spare cash and few safe places to put it, and the lower Treasury bill returns reflect that. They do not show that business loans have become cheaper.
The Financial Markets Dealers Association expects about ₦13.79 trillion to flow into the system in November from maturing securities and government payments. That is almost twice the cash banks held at the end of October.
The CBN has two choices. It can sell new OMO bills to pull that cash back out, or it can leave more of it with the banks.
If OMO sales climb back toward September’s level, October was only a short break. If more bills keep maturing than the CBN sells, banks will hold even more cash and Treasury bill returns may keep falling.
More cash in the banks does not mean inflation is under control. It also does not mean overdrafts or business loans will get cheaper this week.
It takes time for spare bank cash to turn into cheaper loans for the public. Banks still choose between lending to customers and buying government bills, and loan rates and lending rules change slowly, on their own timetable.
Daily costs remain high. Petrol in Lagos sells for about ₦1,370 a litre after recent depot price increases. A bank with spare cash and a family on a tight budget can exist at the same time.
There are three things to watch. The first is November’s OMO sales, which will show whether the CBN pulls back the ₦13.79 trillion inflow or lets it stay in the system.
The second is overnight and loan rates, which will show whether they fall as cash rises or stay near 20 per cent while only Treasury bill returns ease.
The third is Treasury bill sales. If the DMO keeps selling only a small share of what it offers, lower returns will mostly reflect a shortage of bills.
In October, the CBN took less cash out of the banks, and about ₦2.87 trillion went back. Bank cash jumped, and Treasury bill returns fell because there were too few bills for too much money. That change is real, but cheaper loans and lower inflation still need proof. November’s OMO sales and the overnight rate will show whether the extra bank cash becomes cheaper money for households and businesses.
