In a move aimed at spurring economic growth in the face of soaring inflation and rising prices of goods and services, the Central Bank of Nigeria (CBN) has drastically reduced its cash mop-up operations by 82%, bringing the figure down to N150 billion for the nine months ending on September 30th, 2023, compared to N830 billion during the same period in 2022.

The CBN employs cash mop-up operations as part of its money supply management strategy, which involves occasionally withdrawing or injecting cash into the banking system through the sale or repayment of Open Market Operations (OMO) Treasury Bills. The sale of OMO Treasury Bills helps reduce the money supply in the economy and curtail inflation, while the repayment of maturing OMO TBs with interest serves to increase money supply to stimulate economic growth.

Despite this significant reduction in cash mop-up efforts, it remains uncertain whether this measure has effectively stimulated economic growth over the past nine months, as inflation has continued its upward trajectory, and the gross domestic product (GDP) growth has been sluggish.

According to data from the CBN, OMO TBs worth N150 billion were sold during the nine months of 2023, down from N830 billion sold during the same period in 2022. Additionally, the amount of matured OMO TBs repaid by the CBN dropped by 82% to N313.52 billion in 9M’23, compared to N1.741 trillion in 9M’22.

As a result, the banking system experienced a net cash injection of N164 billion from OMO TBs in 9M’23, down from N911 billion in 9M’22. However, the sharp reduction in cash mop-up activities by the CBN led to a 46% increase in the average daily cash balance in the banking industry, rising from N214.87 billion in 9M’22 to N407.13 billion in 9M’23.

Additionally, last week saw a 31% increase in the average daily cash balance, driven by an inflow of N1.1 trillion allocated to the three tiers of government by the Federation Accounts Allocation Committee (FAAC) the previous week. This surge in liquidity resulted in a 170 basis point decline in interest rates in the interbank money market.

Market analysts anticipate that interbank interest rates will remain low, given the CBN’s plans to inject N10 billion through matured OMO TBs, further boosting idle cash in the system.

In their analysis of the financial market, analysts from Lagos-based investment bank Comercio Partners stated, “We expect rates to hover at these current levels.”

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