The Central Bank of Nigeria (CBN) raised a total of N1.008 trillion at its Open Market Operations (OMO) auction held on Friday, April 25, 2025, following overwhelming investor demand that led to a 102% oversubscription.
The auction, which initially offered N500 billion across two maturities, attracted total bids of nearly N1.4 trillion, with investors seeking to take advantage of high-yield government instruments amid rising inflation and expanding money supply.
This move by the CBN affirms its aggressive monetary tightening stance aimed at mopping up excess liquidity and cooling inflationary pressures that have persisted despite elevated interest rates and a record-high cash reserve ratio.
Investors show strong preference for longer tenors
The most in-demand instrument at the auction was the 319-day OMO bill, maturing on March 10, 2026. It drew a total subscription of N1.062 trillion, more than four times the CBN’s offer of N250 billion. The central bank eventually allotted N688.30 billion at a stop rate of 22.73%, with bid rates ranging between 20.39% and 23.75%.
The demand surge reflects investor expectations that high interest rates will persist, prompting a move to lock in attractive yields for the longer term.
In comparison, the 298-day bill, maturing on February 17, 2026, also performed strongly. It received bids totalling N329.54 billion versus the same N250 billion on offer. The CBN allotted N319.54 billion at a stop rate of 22.37%, with bid rates falling between 20.45% and 23.75%.
In total, the CBN raised N1.008 trillion, more than double its initial offer, and a clear sign of the liquidity that remains available in the financial system despite policy tightening.
What you should know
The OMO auction comes at a time when Nigeria’s broad money supply (M3) continues to rise sharply, undermining the CBN’s efforts to reduce liquidity through tools like the 50% cash reserve ratio (CRR)—the highest in the world.
- According to data released by the CBN, M3 grew to N114.22 trillion in March 2025, marking a 24% year-on-year increase from N92.19 trillion in March 2024.
- On a month-on-month basis, money supply rose by 3.2%, up from N110.71 trillion in February. The growth was largely attributed to a 38.9% increase in net foreign assets (NFA), which reached N45.17 trillion, indicating stronger capital inflows and external liquidity.
- However, net domestic assets (NDA)—which reflect money circulating within the domestic economy—fell by 11.7% to N69.05 trillion, suggesting that while local liquidity is being squeezed, foreign inflows are more than offsetting the effect.
This trend complicates the CBN’s liquidity management efforts. Despite imposing tighter controls on banks through elevated CRR requirements and a high benchmark interest rate of 27.5%, total system liquidity remains buoyant. The excess liquidity is now translating into higher demand for government securities and, more worryingly, persistent inflationary pressure.
- Inflation in Nigeria remains stubbornly high, driven by rising food prices, transportation costs, and energy expenses. The National Bureau of Statistics (NBS) reported that headline inflation rose to 24.23% in March 2025, up from 23.18% in February. On a month-on-month basis, inflation climbed by 3.90%, compared to 2.04% in the previous month, indicating mounting demand-side pressures and higher input costs.
- The rapid expansion of money supply has added to concerns that inflation could spiral further if not brought under control.
Friday’s OMO auction serves as a key indicator of the CBN’s continued reliance on market-based tools to rein in excess liquidity. U.S. investment bank J.P. Morgan recently urged investors to exit long positions in Nigerian OMO bills, warning that global risks, driven by falling oil prices and renewed trade tensions, could deepen Nigeria’s macroeconomic vulnerabilities. However, the strong investor turnout, especially for longer-dated instruments, indicates that financial institutions are willing to tie down capital in longer-term securities to capitalise on high yields while guarding against inflation.
OMO bills also play a central role in helping the CBN influence short-term interest rates and absorb excess cash from the system. By issuing these high-yield bills, the apex bank is able to sterilise liquidity, reduce inflationary momentum, and guide market expectations ahead of its next monetary policy decision.
All eyes are now on the Monetary Policy Committee (MPC) meeting scheduled for May 19–20, 2025, where it is expected that the CBN will consider further tightening measures. Having maintained the policy rate at 27.5% in February, the central bank may be forced to act more decisively in May in response to both the acceleration in inflation and the expansion in money supply.
The challenge for the CBN, however, is in balancing the need to control inflation with the risk of over-tightening, which could weaken credit growth and increase borrowing costs for businesses and households.
