Nigeria’s financial markets began 2026 under intense strain as the Central Bank of Nigeria (CBN) withdrew more than ₦15 trillion from the banking system in January, reinforcing its tight monetary stance amid stubborn inflation and persistent foreign exchange pressures.
Data from the CBN and insights from market operators show that the aggressive liquidity mop-up signals the apex bank’s determination to prioritise macroeconomic stability over near-term liquidity relief, keeping borrowing costs elevated and investor sentiment cautious.
Although headline system liquidity improved slightly from December levels, analysts say the marginal recovery masked the scale of cash sterilisation carried out during the month.
Average system liquidity closed January at a net negative ₦2.4 trillion, an improvement from the ₦2.9 trillion deficit recorded in December 2025. However, this was largely overshadowed by aggressive Open Market Operations (OMO), treasury issuances and banks’ placements with the CBN.
CBN data show that January’s liquidity squeeze was driven by the simultaneous deployment of multiple policy tools:
- ₦8.5 trillion withdrawn through OMO sales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 offset by inflows from OMO maturities, treasury repayments and limited borrowing through the Standing Lending Facility (SLF), leaving banks significantly cash-constrained by month-end.
Market analysts say the January numbers reflect a deliberate policy choice by the CBN to maintain tight conditions. “What January showed clearly is that the CBN is prioritising macro stability over liquidity comfort. The scale of OMO activity suggests the bank is not ready to relax, especially with election-related FX risks already on the horizon,” said Ayodele Akinwunmi, Head of Research at FSDH Merchant Bank.
According to Blakey Ijezie, founder of Okwudili Ijezie & Co, investors believe interest rates are near their peak but remain cautious. “Investors are taking advantage of current rates, particularly at longer maturities, but they are not confident enough to bet aggressively on near-term easing,” he said.
Tilewa Adebajo, Chief Executive Officer of CFG Advisory, said the tightening comes at a cost, but remains necessary. “The aggressive use of OMO tightens domestic liquidity to rein in inflation and stabilise the system. While it raises funding costs for businesses and households, the overriding objective is price stability,” he said.
The immediate impact of the liquidity squeeze was visible in the money market, where funding stress intensified.
Both the Open Buy Back (OBB) and Overnight (ON) rates surged above 26 percent, reflecting heightened competition for cash among banks.
Despite tight liquidity, investor appetite for government securities remained strong.
The CBN conducted two Nigerian Treasury Bills (NTB) auctions in January, offering ₦2.4 trillion across 91-day, 182-day and 364-day tenors.
- Total bids reached ₦4.9 trillion, more than double the amount offered
- Demand was strongest for 364-day bills
- Average NTB yields rose by 60 basis points to 18.5 per cent, with heavier selloffs at short- and mid-tenors
OMO operations remained central to policy execution, underscoring the CBN’s determination to curb excess naira liquidity and defend the foreign exchange market.
The bond market reflected a more cautious response to the tightening cycle.
The Debt Management Office (DMO) reopened three FGN bonds, February 2031, February 2034 and January 2035, offering ₦900 billion.
- Subscriptions exceeded the offer by 2.5 times
- The January 2035 bond attracted the strongest demand
- Average bond yields edged slightly lower to 16.5 per cent
While short- and mid-term yields compressed, long-dated bonds saw modest upward movement, suggesting investors are positioning to lock in yields ahead of any future easing, while remaining mindful of short-term risks.
The sustained liquidity squeeze has far-reaching implications:
- Banks face higher funding costs, tighter credit conditions and margin pressure
- Investors continue to favour fixed-income assets over equities as yields remain attractive
- The economy may face slower growth, but the CBN is prioritising inflation control and FX stability
January 2026 marked one of the most aggressive liquidity mop-up phases in recent months, driven by excess money supply and rising cash outside the banking system.
Despite the heavy cash drain, strong demand for longer-dated government securities signals investor confidence in yields, even as monetary conditions remain firmly tight.
