By David Akinmola
Nigeria’s money market is expected to receive N2.499 trillion in fresh inflows this week, offering potential liquidity support to financial institutions and investors, even as banking system liquidity fell by 23.68 per cent to N3.71 trillion, reflecting the impact of monetary policy operations and government debt issuance.
The projection by the Financial Markets Dealers Association (FMDA), contained in its weekly report dated October 12, indicates that the expected inflows are 13.1 per cent below the N2.877 trillion estimated for the previous week. The decline in system liquidity from about N4.86 trillion to N3.71 trillion represents a contraction of approximately N1.15 trillion in the week ended October 9.
Open Market Operations (OMO) maturities are expected to account for the bulk of the projected inflows, at N2.409 trillion, representing about 96.4 per cent of the total. This is higher than the N2.168 trillion in OMO maturities recorded in the preceding week.
However, the increase in OMO maturities is offset by a sharp decline in expected Treasury bills maturities, which are projected at N80.84 billion, compared with N705.73 billion in the previous week.
Corporate bond coupon payments are expected to contribute N4.33 billion, up from N2.82 billion, while commercial paper maturities are projected at N4.49 billion, compared with N130 million previously. No corporate bond maturities are expected this week, against N10.09 billion recorded in the preceding period.
The liquidity squeeze followed significant fund absorption through the Central Bank of Nigeria’s (CBN) OMO auctions and Treasury bills issuance by the Debt Management Office (DMO).
The CBN sold N3.31 trillion in OMO instruments against maturities of N2.17 trillion, implying net absorption of about N1.14 trillion. Similarly, the DMO allotted N968.47 billion in Treasury bills against maturities of N705.73 billion, translating into net absorption of approximately N262.74 billion.
These operations tightened liquidity conditions, with implications for banks’ short-term funding positions, fixed-income investments and the cost of money in the financial system.
The impact was also reflected in the fixed-income market, where the average Treasury bills yield rose by 30 basis points to 18.16 per cent, while the average Federal Government bond yield increased by about 25 basis points to 16.06 per cent.
Market conditions this week will depend largely on how the CBN manages the N2.409 trillion in maturing OMO instruments. If the apex bank conducts fresh auctions to absorb a substantial portion of the funds, the expected inflows may provide only limited relief to banking system liquidity, keeping short-term yields elevated.
Conversely, if a larger share of the maturing funds remains within the financial system, liquidity could improve, potentially easing pressure on short-term funding costs and yields.
The latest weekly projection comes against the backdrop of a broader decline in expected liquidity inflows for October. In its September monthly report, the FMDA projected total inflows of N13.25 trillion for October, down 14.82 per cent from the N15.556 trillion estimated for September. OMO maturities were expected to account for N9.051 trillion of the October projection.
The CBN’s liquidity management strategy remains central to the outlook, as the volume of funds released through maturing instruments may be offset by new auctions and other monetary operations.
For investors, the combination of lower system liquidity and rising yields could sustain interest in fixed-income securities, although returns and market direction will depend on subsequent monetary operations and prevailing funding conditions.
The projected N2.499 trillion should therefore be viewed as potential gross inflows from maturing securities and scheduled payments, rather than a guarantee that the same amount will remain available in the banking system. The eventual effect on liquidity and yields will depend on how much of the funds is absorbed through fresh debt issuance and other CBN operations.
