CBN raises over N1trn at latest OMO auction as money supply surges

The Central Bank of Nigeria (CBN) raised a total of N1.008 trillion at its Open Market Operations (OMO) auction over the weekend, driven by overwhelming investor demand that saw a 102 per cent oversubscription.

The auction, which had initially offered N500 billion across two maturities, attracted bids nearing N1.4 trillion as investors moved to secure high-yield government instruments in the face of mounting inflation and an expanding money supply.

This action by the CBN underlines its firm commitment to aggressive monetary tightening, aimed at draining excess liquidity from the financial system and tempering inflationary pressures that have proven resilient despite elevated interest rates and a record-high cash reserve ratio.

The most sought-after instrument at the auction was the 319-day OMO bill, maturing on 10 March 2026, which received subscriptions totalling N1.062 trillion, more than four times the central bank’s initial offer of N250 billion.

The CBN eventually allotted N688.30 billion at a stop rate of 22.73 per cent, with bid rates ranging between 20.39 per cent and 23.75 per cent.

The sharp surge in demand reflects investor sentiment that high interest rates will persist, prompting a strategy to lock in attractive yields over a longer horizon.

Similarly, the 298-day bill, maturing on 17 February 2026, also attracted strong interest. It recorded total bids of N329.54 billion against the same N250 billion on offer.

The central bank allotted N319.54 billion at a stop rate of 22.37 per cent, with bids falling within a range of 20.45 per cent to 23.75 per cent.

In total, the CBN raised N1.008 trillion, more than double its original offer, a clear reflection of the liquidity still present in the financial system despite efforts to curb it.

The auction comes at a time when Nigeria’s broad money supply (M3) continues to rise sharply, complicating the CBN’s liquidity management objectives despite the introduction of the 50 per cent cash reserve ratio (CRR), the highest in the world.

According to figures released by the central bank, M3 expanded to N114.22 trillion in March 2025, representing a 24 per cent increase year-on-year from N92.19 trillion in March 2024.

On a month-on-month basis, the money supply rose by 3.2 per cent, up from N110.71 trillion recorded in February.

The growth was largely fuelled by a 38.9 per cent increase in net foreign assets (NFA), which reached N45.17 trillion, signalling stronger capital inflows and enhanced external liquidity.

However, net domestic assets (NDA), representing liquidity circulating within Nigeria’s economy,  declined by 11.7 per cent to N69.05 trillion, suggesting that while domestic liquidity is being squeezed, foreign inflows are more than compensating for the tightening measures.

This emerging pattern complicates the central bank’s task. Despite the imposition of higher CRR requirements and maintaining the benchmark interest rate at an elevated 27.5 per cent, liquidity levels remain buoyant.

The excess liquidity is now manifesting in heightened demand for government securities and, more troublingly, persistent inflationary pressures.

Nigeria’s inflation continues to defy efforts at containment, driven largely by rising food prices, transportation costs and energy expenses.

The National Bureau of Statistics (NBS) reported that headline inflation rose to 24.23 per cent in March 2025, up from 23.18 per cent in February.

On a month-on-month basis, inflation accelerated by 3.90 per cent, compared to 2.04 per cent in the previous month, indicating growing demand-side pressures and higher production costs.

The sharp expansion in the money supply has deepened concerns that inflation could escalate further if left unchecked.

Friday’s OMO auction serves as a pointed signal of the CBN’s reliance on market-based tools to rein in excess liquidity. Recently, U.S. investment bank J.P. Morgan advised investors to exit long positions in Nigerian OMO bills, warning that falling oil prices and renewed global trade tensions could expose Nigeria’s macroeconomic vulnerabilities.

Nonetheless, the strong investor turnout, particularly for longer-dated securities, indicates that financial institutions are still keen to anchor capital in longer-term instruments offering high yields while hedging against inflation.

OMO bills remain pivotal in enabling the CBN to steer short-term interest rates and absorb surplus cash from the banking system. By issuing these high-yield securities, the central bank can drain liquidity, curb inflationary momentum, and shape market expectations ahead of its next monetary policy meeting.

Attention is now turning towards the Monetary Policy Committee (MPC) meeting scheduled for 19–20 May 2025, where further tightening measures are expected to be debated.

Having kept the policy rate unchanged at 27.5 per cent in February, the CBN may be compelled to take more decisive steps in May in response to accelerating inflation and the surge in money supply.

The central challenge for the CBN lies in finding a delicate balance: tightening sufficiently to bring inflation under control without stifling credit growth or pushing borrowing costs to levels that could hurt businesses and households.