Liquidity in Nigeria’s financial system surged to an unprecedented N5.73 trillion on Monday, up from N4.02 trillion the previous Friday, following recent monetary policy adjustments by the Central Bank of Nigeria (CBN). The sharp rise reflects the market’s reaction to the apex bank’s decision at its 302nd Monetary Policy Committee (MPC) meeting to cut the Monetary Policy Rate (MPR) by 50 basis points to 27 percent , its first rate change since November 2024.
Alongside the rate cut, the CBN narrowed the Standing Facilities corridor to +250/-250 basis points around the MPR, down from +500/-100. This policy shift has significantly boosted activity in the Standard Deposit Facility (SDF), where placements soared to N5.39 trillion on Monday alone.
The move comes as headline inflation continues to ease, slowing for the fifth consecutive month in August 2025 to 20.12 percent. The moderation has created room for a slight policy loosening to support growth and improve liquidity conditions.
Since the MPC’s announcement, system liquidity has more than doubled from N2.12 trillion last Monday to N5.73 trillion this week, driven largely by increased flows into the SDF. The SDF, a key liquidity management tool, enables commercial banks to deposit surplus funds with the CBN in exchange for interest. It helps sterilise idle funds to reduce inflationary pressures, provides a floor for interbank lending rates, and supports short-term market stability.
The new corridor structure has made the SDF more attractive, prompting banks to lock up record amounts of cash with the central bank. While this strategy provides banks with safe returns and shields them from rising non-performing loans which reached 6.03 percent in Q1 2025, it also means much of the liquidity is trapped within the CBN rather than flowing into the real economy.
Money market rates have responded sharply to the liquidity surge. On September 24, the Open Buy Back (OBB) rate dropped to 24.5 percent, while the overnight rate eased to 24.88 percent, their lowest levels since November 2024.
Analysts describe the CBN’s actions as a delicate balancing act easing rates to meet market expectations while using liquidity tools like the SDF and the revised corridor to prevent excessive money supply. They suggest another moderate rate cut could follow in November if inflation continues to trend downward in September and October.
For small and medium-sized enterprises, however, the liquidity surge has yet to translate into easier access to credit. With much of the excess liquidity sterilised at the CBN rather than circulating through the banking system, lending to businesses remains constrained. This limits the policy’s immediate impact on investment, expansion, and job creation areas that are critical for economic growth and MSME resilience.
The CBN’s current approach is strengthening monetary stability and helping tame inflation, but sustained growth in the real economy will depend on whether banks redirect more of this liquidity toward productive lending, particularly to small businesses that remain the backbone of Nigeria’s economy.
