Nigeria’s financial markets are facing significant pressure as the Central Bank of Nigeria (CBN) intensifies its monetary tightening stance withdrawing a staggering ₦15 trillion from the banking system in January 2026.
This aggressive liquidity sterilisation marks one of the most forceful policy moves by the apex bank in recent years and signals commitment to battling inflation and foreign exchange instability.
What Happened?
According to recent market data and insights from financial analysts, the CBN utilised a combination of policy tools throughout January to significantly drain liquidity from the financial system.
The net effect was a sharp contraction in cash available to banks and investors. Key components of the January sterilisation include:
- ₦8.5 trillion withdrawn through Open Market Operations (OMO) sales
- ₦2.9 trillion parked by banks at the Standing Deposit Facility (SDF)
- ₦3.7 trillion raised via primary market treasury issuances
These outflows were only partly balanced by funds flowing back from OMO maturities and treasury repayments, leaving the banking system significantly cash-strapped.
Why the Tightening?
CBN policymakers appear determined to prioritise price stability and exchange rate discipline over short-term liquidity relief. Analysts interpret the scale of the sterilisation as a deliberate bet that tighter conditions are needed to rein in inflation and support the naira.
Experts highlight that with election-related FX pressures on the horizon, the CBN is signalling it is not ready to ease monetary conditions soon.
Immediate Market Impact
The tightening was felt acutely across key money-market indicators:
Interbank funding rates skyrocketed, with Overnight and Open Buy Back (OBB) rates surging above 26%, reflecting deep stress in short-term cash markets.
Treasury bill auctions drew strong investor interest despite tight liquidity, especially for 364-day bills, where demand far exceeded supply.
Average NTB yields rose, climbing roughly 60 basis points to around 18.5%, as investors priced in prolonged tight monetary conditions.
Bond Market Signals
Despite the liquidity squeeze, investors showed confidence in longer-term government debt. The Debt Management Office (DMO) reopened several Federal Government bonds (2031, 2034, 2035), attracting subscriptions 2.5 times the amount offered highlighting strong appetite for long-dated yields even amid restrictive policy.
Broader Implications
The CBN’s tightening has wide-ranging effects:
- Banks are facing higher funding costs, compressed margins, and tighter credit conditions.
- Investors continue to prefer fixed-income instruments over equities due to attractive yields.
- Businesses and households may feel the pinch as borrowing costs rise, potentially dampening growth.
The policy choice underscores a difficult trade-off: tighter monetary conditions may slow economic activity in the short term, but are aimed at controlling inflation and safeguarding financial stability.
What This Means Going Forward
January 2026 will be remembered as one of the most assertive liquidity management periods by the CBN. By absorbing excess naira liquidity through large-scale OMO sales and treasury operations, the apex bank is doubling down on its belief that macro-stability must take precedence over easy access to cash.
Source: Nairametrics
