Open Market Operation settlements in October returned roughly N2.87 trillion to Nigerian banks, after the Central Bank of Nigeria sold N6.182 trillion in new OMO bills while N9.051 trillion in older instruments matured.
The October outcome reversed the September position, when the CBN sold N17.51 trillion in OMO bills against maturities of N10.89 trillion and withdrew about N6.62 trillion from the banking system.
OMO is the mechanism the CBN uses to manage naira liquidity held by banks. Selling short-term bills drains cash, while maturing bills release funds back to the banks. In October, maturities exceeded new sales, so cash returned to the system.
Banking system liquidity, measured as spare cash held by banks, climbed 56.75 per cent to N7.373 trillion in October from N4.703 trillion in September, according to the Financial Markets Dealers Association. That represents an increase of about N2.67 trillion in one month.
Even with more cash in the system, interbank borrowing costs barely moved. One overnight rate stayed at 20 per cent, while another eased only slightly to 20.38 per cent. The CBN's benchmark rate remains 23 per cent following the September reduction.
The average yield on Treasury bills fell to 17.88 per cent on Monday. Returns on 91-day, 182-day and 364-day bills all declined modestly to between 15.40 and 15.80 per cent.
Supply explains most of the decline in Treasury bill yields. Last week the Debt Management Office offered N800 billion in Treasury bills, investors submitted demand of N1.91 trillion, and the DMO sold only N71.16 billion, about 9 per cent of the amount offered. When buyers compete for a limited supply of bills, prices rise and yields fall. Banks and fund managers holding spare cash have few safe investment outlets, which is reflected in lower Treasury bill returns rather than cheaper business loans.
The Financial Markets Dealers Association projects about N13.79 trillion will enter the system in November from maturing securities and government payments, almost twice the cash banks held at the end of October.
