Nigeria’s liquidity pool expands to N5.22tn as markets eye fresh inflows

Nigeria’s financial system witnessed a significant expansion in liquidity in May, with average system liquidity rising to N5.22 trillion despite aggressive cash sterilisation by the Central Bank of Nigeria (CBN), according to the latest Monthly Market Report released by the Financial Markets Dealers Association (FMDA).

The report showed that average liquidity in the banking system increased by 7.76 percent month-on-month, underscoring the strength of market liquidity conditions even as the CBN withdrew an estimated N12.06 trillion through various liquidity management operations during the month.

Market participants are now looking ahead to an even larger liquidity injection in June, with FMDA projecting total inflows of N10.90 trillion into the financial system, about 3.5 percent higher than the N10.53 trillion recorded in May.

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The expected inflows are largely driven by N7.77 trillion in maturing Open Market Operations (OMO) bills, which account for approximately 71 percent of the projected total liquidity entering the market this month. Other expected inflows include N995.81 billion from Treasury bill maturities, N278.99 billion in Federal Government bond coupon payments, N49.04 billion from corporate bond coupons, N10.46 billion in commercial paper maturities and an estimated N1.8 trillion from Federation Account Allocation Committee (FAAC) allocations.

“Looking ahead, an estimated N10.90 trillion in inflows is projected for June,” FMDA said, noting that OMO maturities would remain the dominant source of liquidity in the market.

The association, however, cautioned that the final liquidity impact could be moderated by subsequent CBN sterilisation activities aimed at managing money supply and inflationary pressures.

Strong liquidity conditions are expected to support demand for fixed-income securities and help ease funding pressures for banks and other financial institutions.

According to FMDA, “elevated liquidity conditions support investment in fixed income securities,” while large OMO maturities are expected to boost system liquidity and support funding availability.

The liquidity expansion comes at a time when broader macroeconomic indicators present a mixed picture. While oil prices remained elevated and external reserves improved, the naira continued to experience mild depreciation.

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Average Brent crude oil prices rose to $102.40 per barrel in May, supported largely by geopolitical tensions in the Middle East. Although recent optimism surrounding potential peace talks has pushed prices below the $100 mark, elevated oil prices continue to provide support for Nigeria’s fiscal position and foreign exchange earnings.

The report noted that external reserves gained more than $1 billion within about three weeks as receipts from earlier crude oil exports gradually flowed into government accounts. Average reserves stood at $48.63 billion during the review period.

Despite these developments, the naira depreciated by 0.64 percent in the Nigerian Foreign Exchange Market (NFEM), closing the month at an average of N1,370 per dollar. The parallel market exchange rate averaged N1,395.22 per dollar.

FMDA attributed the currency’s weakness partly to the time lag between crude oil exports and the receipt of export proceeds, noting that the benefits of higher oil prices are only beginning to reflect in reserve accretion and government finances.

In the fixed-income market, yields remained broadly stable. Average Federal Government bond yields edged up to 16.24 percent in May from 16.19 percent in April, while average Treasury bill yields rose slightly to 17.45 percent. Nigeria’s benchmark 10-year bond yield increased marginally to 14.96 percent.

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The equities market also maintained its positive momentum. The Nigerian Exchange All-Share Index advanced by 3.35 percent to 250,385.70 points, while market capitalisation increased by 2.52 percent to N159.93 trillion. However, trading activity weakened significantly, with trade volume and value declining by 60.96 percent and 66.55 percent, respectively.

Looking ahead, FMDA expects strong liquidity conditions, improving reserve dynamics and elevated oil prices to provide support for financial markets. Nevertheless, it advised banks and investors to remain cautious about foreign exchange risks and closely monitor future CBN liquidity management operations.

“Position portfolios to benefit from elevated liquidity and sizeable June inflows,” the regulator advised, while maintaining prudent risk management amid evolving domestic and global economic conditions.