Nigeria’s banking system could see liquidity rise to about ₦8.57 trillion this week as large Open Market Operations maturities and bond coupon payments enter the financial system.
The development follows the Central Bank of Nigeria’s decision last week to reduce the Monetary Policy Rate from 26.5 percent to 23 percent.
Financial-system liquidity had already risen sharply to about ₦5.98 trillion by September 25. Another ₦2.43 trillion in Open Market Operations maturities, together with bond coupon payments, could push available liquidity significantly higher.
The Central Bank therefore faces a delicate balancing act.
Too little liquidity can make borrowing expensive and restrict economic activity. Too much liquidity can create inflationary or foreign-exchange pressure if it is not properly managed.
The Central Bank’s decision to cut the policy rate suggests greater confidence that inflationary pressure is moderating. But the current liquidity build-up means the bank may also need to use its monetary tools to prevent excess cash from creating new pressures.
The effect will be important for businesses and investors.
Lower interest rates can eventually support cheaper credit, while lower Treasury-bill yields can change the attractiveness of government securities and encourage investors to consider other assets.
But cheaper money will only matter to ordinary businesses if banks actually reduce lending rates.
The coming weeks will therefore show whether the monetary-policy reset produces broader economic activity or simply creates more liquidity within the financial system.
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By Viewers Corner News