Nigeria’s financial system witnessed a historic surge in liquidity this week, with balances climbing to an unprecedented N5.73 trillion. This sharp increase, up from N4.02 trillion recorded last Friday, comes in the wake of recent policy adjustments announced by the Central Bank of Nigeria (CBN).
At the 302nd Monetary Policy Committee meeting, the apex bank cut the Monetary Policy Rate (MPR) by 50 basis points to 27 percent, marking the first policy easing since November 2024. Alongside this move, the CBN also narrowed the Standing Facilities corridor to +250/-250 basis points around the MPR, from its previous +500/-100 band.
These decisions have quickly reshaped market behavior, particularly through heightened activity in the Standard Deposit Facility, where placements rose to N5.39 trillion on Monday alone.
Why liquidity is surging
The surge in system liquidity reflects a mix of policy easing and moderating inflation. Nigeria’s headline inflation has slowed for five consecutive months, easing to 20.12 percent in August 2025. This gave policymakers confidence to slightly loosen monetary conditions to stimulate growth and ease credit conditions.
The Standard Deposit Facility, which allows commercial banks to lodge surplus funds with the CBN in exchange for interest, has become the instrument of choice for managing liquidity. With the corridor adjustment making the facility more attractive, banks are now parking record sums with the apex bank.
This mechanism plays a dual role. On one hand, it sterilizes idle funds, reducing inflationary risks. On the other, it ensures short-term stability in interbank markets by setting a floor for lending rates.
The effect on money markets
The immediate impact of these developments has been felt in interbank lending rates. On Wednesday, September 24, 2025, the Open Buy Back rate dropped to 24.5 percent, while the overnight rate eased to 24.88 percent. These are the lowest levels seen since November 2024, signaling the market’s response to improved liquidity.
For commercial banks, this presents a low-risk opportunity to earn interest on deposits while avoiding exposure to non-performing loans, which rose to 6.03 percent in Q1 2025.
Expert perspective
According to Abigael Kazeem-Adeshina, Research Analyst at Norrenberger Financial Group, the CBN’s actions reflect a calculated balancing act.
“On one hand, the central bank is easing rates to align with market expectations and support growth. On the other, it is ensuring money supply remains controlled through its corridor adjustments, especially following the recent reduction in the Cash Reserve Ratio,” she explained.
She added that a further moderate rate cut could be considered at the November MPC meeting, depending on inflation outcomes for September and October.
The bigger picture
While system liquidity has reached record highs, much of it remains sterilized at the CBN. This limits its direct impact on credit creation and private sector expansion. In essence, while banks benefit from safe returns, the wider economy continues to feel constrained in terms of capital availability.
The CBN’s strategy appears to be one of cautious optimism, supporting growth without allowing inflationary pressures to resurface. The coming months will reveal whether this delicate balance can hold as Nigeria navigates its recovery path.
The CBN’s policy adjustments have reshaped Nigeria’s money market, with liquidity soaring to record levels and interbank rates easing significantly. However, with much of this liquidity trapped in safe facilities at the apex bank, the challenge remains how to translate these gains into real sector growth.
The key question is whether Nigeria’s financial system can strike the right balance between stability and expansion. For now, banks are enjoying safe returns, while policymakers are carefully steering the ship.
