Liquidity Pressures Persist As Banks’ Standing Deposit Facility Placements Hit N33.05trn

The Standing Deposit Facility (SDF) rose to N10.14 trillion last week from N8.8 trillion the previous week, underscoring persistent excess liquidity in the banking system despite the Central Bank of Nigeria’s (CBN) ongoing monetary tightening measures.

In total, banks’ deposits into the CBN’s coffers were N33.05 trillion in the 16 working days of this January, a little more than half of the N63.92 trillion deposited with the apex bank in December 2025.

Last week’s N10 trillion deposit at the SDF came even as the system recorded a primary market repayment of N2.2 trillion, with the overall liquidity shortfall worsening to N2.5 trillion from N1.8 trillion the previous Friday.

Market data indicated that liquidity conditions remained under pressure mainly due to significant inflows into the SDF, which stood at N10.1 trillion, as deposit money banks continued to take advantage of the facility’s competitive rate relative to primary and secondary market treasury bills.

In addition, the CBN debited the banking system through the sale of N1.1 trillion Nigerian Treasury Bills and N2.6 trillion Open Market Operation bills. Yet these measures failed to reduce excess liquidity materially.

In his personal statement at the 303rd meeting of the Monetary Policy Committee, the CBN deputy governor, Economic Policy Directorate, Muhammad Abdullahi, said the central bank remains confronted with excess liquidity in the banking system, driven by substantial placements at the SDF window and further compounded by the liquidity impact of maturing OMO bills.

Abdullahi, who voted to leave monetary policy unchanged, noted that the overarching objective of safeguarding long-term macroeconomic stability remains paramount.

According to him, the MPC is confronted with persistent excess liquidity in the banking system. This, he said, is evidenced by substantial placements at the standing deposit facility (SDF) window and compounded by the liquidity impact from maturing OMO bills.

At its last meeting in November, the MPC had surprised market watchers who expected a 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 had held rates moving only the asymmetric corridor from +500/-100 to +250/-250.

Warning that the situation risks weakening the impact of monetary tightening and undermining efforts to rein in inflation, he said, “this excess liquidity risks diluting the effectiveness of our tight monetary policy stance and undermines efforts to control inflation, requiring consideration of enhanced OMO operations and improved monitoring of monetary aggregates like M1 to preserve policy credibility,” he added.

Meanwhile, the Treasury Bills secondary market remained bearish as participants unwound positions amid expectations of higher stop rates at the NTB primary market auction. Consequently, the average yield across all instruments increased by 8bps to 20.4 per cent.

Across segments, average NTB yields increased by 37bps to 18.5 per cent, while average OMO yields declined by 6bps to 22.4 per cent. At Wednesday’s NTB PMA, the Debt Management Office (DMO) offered N1.15 trillion in bills, with total subscriptions reaching N3.44 trillion.

Ultimately, the DMO allotted NGN1.06 trillion, while stop rates increased on the 91 Day bill by 4bps to 15.84 per cent and the 182-Day bill by 15bps to 16.65 per cent, while the 364 Day bill saw a decline in its stop rate by 11bps to 18.36 per cent. In addition, the CBN conducted an OMO PMA, offering N600.00 billion across the 203-D and 245-D maturities. Ultimately, a total of N2.64 trillion was allotted at respective stop rates of 19.38 per cent and 19.39 per cent. Looking ahead, analysts at Cordros Research say they envisage continued sell-offs in the Treasury bills secondary market, which could see yields edge marginally higher this week.