The Central Bank of Nigeria (CBN) raised a total of N1.008 trillion at its Open Market Operations (OMO) auction held on Friday, April 25, 2025, significantly exceeding its initial offer of N500 billion.
The outcome followed overwhelming investor demand that led to a 102% oversubscription, a strong signal that Nigeria’s financial system remains awash with liquidity despite aggressive monetary tightening.
The auction had offered two maturities, 298 days and 319 days, but total bids approached N1.4 trillion as investors scrambled to secure high-yield government instruments amid rising inflation and surging money supply. The move underscores the CBN’s continued reliance on OMO bills as a key tool to mop up excess liquidity, even as inflationary pressures intensify.
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Investor Appetite Concentrated on Longer Tenors
Investor preference was particularly skewed toward the 319-day instrument, maturing on March 10, 2026. The bill attracted a staggering N1.062 trillion in bids, more than four times the CBN’s offer of N250 billion. The central bank eventually allotted N688.30 billion at a stop rate of 22.73%, with bid rates spanning between 20.39% and 23.75%.
In comparison, the 298-day bill, set to mature on February 17, 2026, also saw strong interest, pulling in N329.54 billion in bids against an identical N250 billion offer. The CBN allotted N319.54 billion at a stop rate of 22.37%, with bid rates ranging from 20.45% to 23.75%.
The higher demand for longer-term bills reflects market expectations that Nigeria’s interest rates will remain elevated for an extended period, prompting investors to lock in attractive yields while they still can. It also signals limited confidence that inflation will ease meaningfully in the near term.
A Liquidity Glut Despite Monetary Tightening
The success of Friday’s OMO auction highlights the persistent liquidity surplus in the Nigerian banking system, even as the CBN maintains the highest cash reserve ratio (CRR) in the world at 50% and a policy rate of 27.5%.
Data from the CBN shows that Nigeria’s broad money supply (M3) grew sharply to N114.22 trillion in March 2025—a 24% increase compared to N92.19 trillion in March 2024. Month-on-month, M3 expanded by 3.2% from N110.71 trillion in February.
The growth was largely driven by a 38.9% surge in net foreign assets (NFA), now standing at N45.17 trillion, indicating stronger external liquidity and capital inflows. However, net domestic assets (NDA), which reflect internal liquidity within the economy, fell by 11.7% to N69.05 trillion, showing that while domestic credit conditions remain tight, external inflows are more than offsetting the squeeze.
This dynamic complicates the CBN’s effort to sterilize liquidity and curb inflation, with foreign money flowing into Nigerian assets even as the apex bank tries to restrict domestic money creation.
At the same time, inflationary pressures remain stubborn. Headline inflation rose to 24.23% in March 2025, up from 23.18% in February, according to the National Bureau of Statistics (NBS). On a month-on-month basis, inflation accelerated by 3.90%, compared to 2.04% a month earlier, suggesting that price pressures are broadening and becoming more entrenched.
The uptick in inflation, fueled largely by food prices, transportation costs, and energy expenses, indicates that despite the CBN’s aggressive tightening posture, monetary conditions remain too loose to effectively contain rising prices.
Worse, the expansion of the money supply, primarily via foreign asset accumulation, could make the inflation fight even harder unless fiscal and monetary authorities align their strategies.
Markets Eye Further Tightening
Friday’s auction sends a strong signal that more tightening could be on the horizon. All eyes are now on the CBN’s next Monetary Policy Committee (MPC) meeting scheduled for May 19–20, 2025, where pressure is mounting for stronger action to anchor inflation expectations.
While the CBN left the benchmark rate unchanged at 27.5% in February, the recent spike in inflation, alongside the surge in money supply, has raised expectations that further rate hikes—or even more aggressive liquidity tightening—may be necessary.
However, analysts warn that the CBN faces a delicate balancing act. Over-tightening could slow credit growth, hamper business activity, and worsen borrowing costs for households already grappling with a cost-of-living crisis. But failing to act could allow inflation to spiral even further, eroding purchasing power and undermining economic stability.
Investor Sentiment Remains Mixed
Despite warnings from international institutions like J.P. Morgan—which recently advised investors to exit long positions in Nigerian OMO bills due to global macroeconomic risks—Friday’s auction showed that domestic appetite remains strong. Investors appear willing to brave the risks, betting that Nigeria’s high yields will more than compensate for potential instability.
The intense demand for longer-dated securities suggests that many institutional players expect the CBN’s monetary stance to remain tight well into 2026, making longer-duration bills a preferred choice to lock in high returns before conditions eventually ease.