Banks Cut Central Bank Deposit By N2.22trn On Interest Rate Slash

Banks pulled back from the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF) last month after the Monetary Policy Committee (MPC) slashed returns through a sharp adjustment of the asymmetric corridor to +50/-450, a move that pushed the SDF rates down to 22.5 per cent and triggered a drop in volumes.

Data from the CBN showed that SDF placements at the apex bank, which averaged N3.25 trillion before the last MPC meeting, saw weekly average decline to N2.22 trillion after the corridor was moved. Liquidity in the banking industry had remained high last month buoyed by over N1.35 trillion in Treasury Bill maturities and N1.76 trillion in OMO maturities, combined with N2 trillion in FAAC inflow.

At its last meeting the MPC surprised market watchers who had expected further easing of monetary policy following its cut to 27 per cent in September.

Despite a fall in inflation to 16.05 per cent in October, the committee opted to hold rates moving only the asymmetric corridor.

Traders said banks have no incentive to keep idle cash with the CBN once the corridor dragged the deposit rate 450 basis points below the policy benchmark.

Total SDF volume in that short November period which was from November 25 to December 5, 2025 amounted to N17.986 trillion with the lowest figure being N1.058 trillion.

The November retreat stands in contrast to earlier months when the deposit window carried more favourable pricing. After the September meeting the MPC rate had been eased to 27 per cent and the corridor moved from +500/-100 to +250/-250.

Between September 23 and November 24, total SDF placements reached N143.088 trillion with a high point of N6.08 trillion recorded on one trading day. The deposit rate during that period was 24.5 percent, which encouraged banks to lodge temporary liquidity with the CBN. SLF usage in that same period was light, totalling N1.04 billion and averaging N23.58 million, as the borrowing rate of 29.5 percent discouraged heavy use.

After the July meeting, when the corridor stood at +500/-100 and the MPR was 27.5 percent, the deposit rate of 26.5 percent drew in a total of N48.99 trillion in SDF placements with a daily high of N2.37 trillion between July 22 to September 22. However, with the SLF priced at 32.5 percent under that wider corridor, total SLF usage reached N4.61 trillion with a notable high of N932.75 billion on one day. Liquidity pressures from cash reserve debits and settlement outflows pushed banks to rely more on the lending window in that period.

Analysts say the November corridor reset signals the strongest attempt yet by the CBN to not only ease monetary condition but to also redirect liquidity away from passive deposits and into active market circulation.

The steep penalty imposed by the -450 corridor, analysts say was designed to suppress the build up of idle balances at the CBN and support more vibrant trading in the interbank market.

Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi commenting said “I think the MPC believes that the volume of funds in circulation is still high. What they are trying to do is also to discourage the banks from bringing funds to the CBN.

“They want to try and push the banks to lend. Also, they’re also making it less expensive if you want to come to that window to get more funds which I don’t see many banks doing because of the level of liquidity in the market.” He said.

At the end of last month, the Overnight NIBOR fell sharply by 814bps month-on month to 22.86 per cent, while the 1-month, 3-month, and 6 month tenors declined moderately by 649bps, 550bps, and 578bps, settling at 24, 24.89, and 28.52 percents, respectively.

Analysts at Cowry Assets noted that the broad decline reflected the liquidity driven relief across the banking system. “Despite softer interbank rates, investor attention shifted to treasury instruments, where demand for higher yields remained firm.”

The NITTY curve trended lower, signaling improved investor appetite. The 12-month NITTY rose by 2.28 per cent to 19.04 per cent, while the 1-month, 3-month, and 6 month benchmarks declined by 1.59 per cent, 1.39 per cent, and 1.94 per cent month-on-month.