CBN withdraws N1.14tn net liquidity via OMO auction as overnight rate rises to 22.2%
The CBN withdrew N3.31 trillion from banks via its October 6 OMO auction while N2.17 trillion matured, resulting in a net liquidity withdrawal of N1.14 trillion. Despite this withdrawal, the overnight lending rate rose 25 basis points to 22.2% as investors bid N3.511 trillion against the N2 trillion offered.
The 182-day bill dominated sales, with CBN allotting N2.671 trillion (80.7% of total) at 16.92%, maturing April 6, 2027. The 147-day bill got N637.20 billion at 17.22%. Both stop rates fell 2 basis points from September 29 levels.
This continues September's pattern where CBN withdrew N6.62 trillion net across five auctions. While the MPC cut the benchmark rate to 23% on September 22, persistent OMO sterilization shows CBN easing rates while draining excess liquidity. Secondary market OMO yields fell to 18.7% but FGN bond yields rose to 15.7%.
The rate increase despite liquidity inflows from maturities suggests tightening credit conditions at the margin. Will businesses face higher borrowing costs despite the policy rate cut, or is this temporary tightening to control inflation while supporting growth?