Nigeria’s financial system is expected to receive about N10.90 trillion in liquidity inflows in June, driven largely by maturing Open Market Operation (OMO) bills, a development that could complicate the Central Bank of Nigeria’s efforts to maintain tight monetary conditions, according to the latest FMDA market report.
The projected inflow is 3.5 percent higher than the N10.53 trillion estimated for May and comes despite aggressive liquidity absorption by the Central Bank.
According to FMDA, average system liquidity rose by 7.76 percent to N5.22 trillion in May, even as the CBN withdrew an estimated N12.06 trillion through OMO auctions and other liquidity management operations.
Analysts noted that system liquidity represents the net balance of funds available in the banking sector after accounting for inflows and outflows.
FMDA said substantial inflows from maturing securities, Federation Account Allocation Committee (FAAC) allocations, bond coupon payments and other sources injected liquidity into the financial system during the month, offsetting much of the Central Bank’s sterilisation activities.
“Under normal circumstances, a withdrawal of N12 trillion would be expected to significantly reduce liquidity. However, the fact that average liquidity still rose to N5.22 trillion suggests that liquidity injections into the system remained strong and that excess liquidity conditions persisted throughout the period,” the analysts said.
The association added that the N12.06 trillion withdrawn by the CBN should not be interpreted as the total amount of liquidity in the system, but rather as evidence of the scale of liquidity management operations undertaken amid sizeable inflows.
“In other words, the N12 trillion withdrawn by the CBN does not imply that total system liquidity was only N12 trillion. Rather, it indicates that sizeable inflows entered the system during the month, allowing liquidity to remain elevated despite the sterilisation efforts,” FMDA said.
Looking ahead, the report estimates that OMO maturities will account for N7.77 trillion, or about 71 percent, of the N10.90 trillion expected to flow into the financial system in June.
Other projected inflows include N995.81 billion from Treasury bill maturities, N278.99 billion in FGN bond coupon payments and N1.8 trillion in FAAC distributions.
FMDA said the concentration of inflows in OMO maturities means a significant amount of cash could return to investors during the month, potentially supporting demand for government securities and money market instruments unless sterilised through fresh CBN operations.
The report noted that the eventual liquidity impact could be moderated by subsequent liquidity management measures by the apex bank.
Meanwhile, the naira depreciated marginally in the Nigerian Foreign Exchange Market despite total market turnover exceeding $8 billion during May.
External reserves, however, increased by more than $1 billion within about three weeks as proceeds from earlier crude oil exports and elevated oil prices flowed into the country’s reserve position.
FMDA noted that there is typically a lag between crude oil sales and the receipt of export earnings, suggesting that the rise in oil prices seen earlier in the year is only now beginning to support reserve accumulation and government finances.
The report also highlighted external risks, noting that global bond yields generally moved higher during May amid persistent inflation concerns and expectations that major central banks would maintain a cautious monetary policy stance.
For investors, the combination of rising reserves, elevated system liquidity and substantial OMO maturities is likely to keep attention focused on the CBN’s next liquidity management moves as policymakers seek to balance inflation control with financial market stability.