CBN Rate Cut Drives Banking Sector Liquidity to N5.73tn

System liquidity in Nigeria’s banking sector surged to N5.73 trillion on Monday, up from N4.02 trillion recorded three days earlier, following the Central Bank of Nigeria’s (CBN) recent Monetary Policy Committee (MPC) decisions.

At its 302nd MPC meeting last week, the apex bank reduced the Monetary Policy Rate (MPR) by 50 basis points to 27 percent—the first cut since November 2024. The CBN also revised its Standing Facilities corridor from +500/-100 basis points around the MPR to a symmetrical +250/-250 basis points, making the Standard Deposit Facility (SDF) more attractive to banks.

The adjustments prompted banks to park excess funds in the SDF, which reached N5.39 trillion, reflecting a preference for risk-free returns rather than lending in the broader market. Analysts say this move stabilises short-term interest rates while moderating inflation risks.

Nigeria’s headline inflation has slowed for the fifth consecutive month, settling at 20.12 percent in August 2025, giving the CBN room to ease rates cautiously.

The policy impact was immediate. Interbank lending rates dropped to their lowest in nearly a year, with the Open Buy Back (OBB) rate falling to 24.5 percent and the overnight rate to 24.88 percent.

Abigael Kazeem-Adeshina, research analyst at Norrenberger Financial Group, described the CBN’s approach as “a delicate balancing act,” aimed at easing rates while maintaining monetary stability. She noted that further moderate rate cuts could follow if inflation continues its downward trend.

While the surge in liquidity reflects the effectiveness of the CBN’s tools, analysts warn that much of the cash is effectively sterilised at the apex bank, limiting immediate lending to households and businesses. Nevertheless, the strategy helps curb rising non-performing loans, which stood at 6.03 percent in Q1 2025, by discouraging banks from chasing riskier credit.