The Central Bank of Nigeria (CBN) raised a total of N804.85 billion in its latest Open Market Operations (OMO) auction held on Monday, April 29, 2025, as investor appetite for high-yield, risk-free securities remained undeterred in the face of surging inflation and persistent excess liquidity.
The auction, which saw total subscriptions hit N1.057 trillion, was oversubscribed by 111 percent — a slight decline from the record N1.391 trillion bid during the previous auction on April 25. Then, the apex bank raised N1.008 trillion after offering two N500 billion instruments.
In this latest round, the CBN floated two long-tenor bills, a 329-day and a 350-day, with equal offers of N250 billion each. But the market made its preference clear: the 350-day paper attracted the lion’s share of attention, receiving a massive N923.60 billion in bids, over three times the offer, compared to the modest N133.25 billion bid for the 329-day paper.
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The longer-tenor bill, maturing on April 14, 2026, was allotted N698.60 billion at a stop rate of 22.73 percent, with bids ranging between 22.4990 percent and 22.9700 percent. The shorter 329-day note, set to mature on March 24, 2026, was allotted N106.25 billion at a slightly lower stop rate of 22.69 percent.
The difference in investor behavior underlines growing expectations that Nigeria’s tight monetary stance, marked by historically high interest rates and an aggressive cash reserve ratio, is likely to persist, at least in the near term. This reflects market consensus that inflationary pressures are far from easing and that the CBN will maintain its hawkish posture to stabilize the naira and prevent capital flight.
Investors Betting on Prolonged Tight Monetary Conditions
The sustained demand for long-dated OMO bills underscores two critical trends: limited attractive investment alternatives amid global uncertainty, and a domestic macroeconomic environment defined by expanding money supply, weak fiscal buffers, and rising inflation.
According to the CBN’s own Money and Credit Statistics, Nigeria’s broad money supply (M3) rose by 3.2 percent in March to N114.22 trillion and has surged by 24 percent year-on-year. Net foreign assets have risen sharply by 38.9 percent to N45.17 trillion, indicating improved capital inflows and some buildup in external reserves. However, net domestic assets fell 11.7 percent to N69.05 trillion, suggesting continued fragility in domestic credit expansion.
In an attempt to rein in liquidity, the apex bank has kept the Cash Reserve Ratio at an unprecedented 50 percent, the highest globally, while the benchmark interest rate remains at a lofty 27.75 percent. But these measures have struggled to tame liquidity growth, let alone inflation.
Inflation climbed to 24.23 percent in March 2025, up from 23.18 percent in February. Month-on-month inflation rose 3.90 percent — the steepest jump this year — fueled by relentless food price hikes, higher transport costs, and the pass-through from currency depreciation. The real economy is feeling the squeeze, and the average Nigerian is left reeling from eroded purchasing power.
CBN’s Dilemma: Mopping Up Liquidity Without Choking Growth
The CBN’s increasing reliance on OMO auctions is not just a liquidity management tool; it has become a signal of policy intent. These frequent bill issuances serve as a brake on speculative activity in the currency market and help set a floor for short-term interest rates.
However, economists caution that the aggressive sterilization through OMO sales, while helping to manage inflation in the short term, may complicate broader monetary transmission and slow credit creation needed for growth. With banks locking up liquidity in government securities rather than lending to the private sector, the risk of crowding out productive investments looms large.
The asymmetric interest in the 350-day paper, compared to the weaker appetite for the 329-day note, also reflects how finely investors are calibrating duration in anticipation of future rate movements. There’s little optimism that inflation will ease significantly in the near term, so locking in longer-term returns is seen as a safer bet.
Macro-Policy Crossroads
This flurry of debt issuance comes amid broader questions about the sustainability of Nigeria’s policy framework. While the CBN has stepped up efforts to clean up excess liquidity and restore investor confidence, inflation remains stubborn, and fiscal pressures are rising.
The federal government’s growing reliance on domestic borrowing, alongside increased monetary sterilization by the CBN, may keep interest rates elevated for longer than anticipated. With global yields also on the rise, Nigeria faces the double-edged sword of needing to offer even higher returns to attract capital while also managing the cost of borrowing.
Many believe that the absence of coordinated fiscal discipline is undermining monetary tightening. The rising public debt stock and continued government spending, including large recurrent expenditures, threaten to dilute the CBN’s efforts to anchor inflation expectations.