Nigeria’s Banks Swim in Cash After Sharp Rate Cut, Testing Inflation Fight
Nigeria · MARKETS
Key Facts
- —The country Nigeria is Africa’s most populous nation, with about 230 million people, more than Brazil. Its currency, the naira, trades near 1,329 per US dollar.
- —Why it matters The Central Bank of Nigeria (CBN) kept interest rates very high for two years to fight inflation, which peaked above 30% and eased to 15.39% in August.
- —Why now On 22 September the CBN cut its benchmark rate from 26.5% to 23%, just as maturing central-bank bills pour cash back into banks.
- —What happened Spare cash in the banking system rose to N5.98 trillion (about US$4.5 billion) in the week to 25 September, from N2.86 trillion (about US$2.2 billion).
- —The numbers Nairametrics projects N8.57 trillion (about US$6.4 billion) this week if another N2.59 trillion (about US$1.95 billion) in maturing bills and coupons stays in banks.
- —What it means for you Naira savings yields are falling: 91-day Treasury bills now pay 15.5%, barely above inflation, while business loans should slowly get cheaper.
- —Still open Whether the CBN sells enough new bills to soak up the cash without undoing its rate cut or reviving inflation.
Nigeria’s central bank has made a surprise 3.5-point interest-rate cut. Now a wave of maturing bills is pouring cash back into Nigerian banks, testing its grip on inflation.
Nigeria, Africa’s most populous country, has spent two years fighting inflation with very high interest rates. On Tuesday, 22 September, its central bank made its sharpest cut yet, lowering the benchmark rate from 26.5% to 23%.
The cut lands as banks are already awash with cash. Dollar figures below use 1,329 naira per US dollar, the rate on 27 September 2026 (open.er-api.com).
What happened to cash in Nigerian banks
Spare cash in the banking system rose to N5.98 trillion (about US$4.5 billion) in the week to Friday, 25 September. That was up from N2.86 trillion (about US$2.2 billion) a week earlier, according to Nairametrics, a financial news site analysing central-bank data.
Much of it came from the Central Bank of Nigeria (CBN) itself. About N2.3 trillion (about US$1.7 billion) of its short-term bills matured and was repaid on Tuesday, 22 September.
Banks parked more than N7 trillion (about US$5.3 billion) at the CBN’s Standing Deposit Facility during the week. That is the overnight window where lenders leave cash they have no better use for.
More is coming. Another N2.43 trillion (about US$1.8 billion) in central-bank bills falls due this week, which starts on Monday, 28 September.
Nairametrics estimates that, with bond coupon payments, spare cash could reach N8.57 trillion (about US$6.4 billion) if banks keep all of it. That would be among the highest levels of 2026, though it is a projection rather than an official figure.
Why the central bank sells bills to drain cash
The CBN manages the amount of naira in circulation through Open Market Operations (OMO). It sells short-term bills to banks and investors, locking the cash away until the bills mature.
The aim is to stop surplus naira from pushing up prices or weakening the currency. The catch is that every bill eventually matures, sending the cash straight back into the banking system.
In late August the CBN absorbed N4.72 trillion (about US$3.6 billion) in two days of OMO auctions, at yields near 20%. Bills sold in earlier months are now reaching maturity in large batches.
Demand for the bills remains strong. Investors bid N20.6 trillion (about US$15.5 billion) for OMO bills so far in September, the year’s highest monthly total, ThisDay reported.
Part of that demand is new. In August the CBN let individuals, companies and non-bank institutions buy OMO bills through commercial banks.
The rate cut changes the calculation
The CBN’s Monetary Policy Committee (MPC), its rate-setting panel, cut the benchmark rate by 3.5 percentage points on 22 September. Few analysts had expected a cut that large.
Governor Olayemi Cardoso called the move a “reset and recalibration” rather than a switch to easier money. He said the gap between the official rate and actual market rates had weakened the policy’s effect.
The committee set the rate banks earn on overnight deposits with the CBN at 20%. It kept the cash reserve requirement, the share of deposits banks must hold at the central bank, at 45%.
Mayokun Ajibade, a special adviser to Cardoso, told Nairametrics TV: “we did not ease.” He described the policy stance as still “very, very restrictive.”
Inflation gave the committee room to act. Headline inflation eased to 15.39% in August from 15.43% in July, according to the National Bureau of Statistics (NBS).
Markets are already pricing cheaper money
Yields fell quickly after the decision. At the CBN’s OMO auction on Thursday, 24 September, 152-day bills cleared at 17.29% and 180-day bills at 16.99%.
The CBN offered N1 trillion (about US$752 million) of bills but drew bids of N6.1 trillion (about US$4.6 billion). It sold N2.3 trillion (about US$1.7 billion), more than double the amount on offer.
At the Treasury bill auction run by the Debt Management Office (DMO), the government’s borrowing agency, the 91-day bill cleared at 15.50%. The 364-day bill cleared at 15.89%.
The overnight rate banks charge each other fell to 20.77% in the week to 25 September. That was 1.47 percentage points lower than a week earlier.
What it means for investors, businesses and residents
For foreign investors, the era of very high naira returns is fading. A 91-day bill now pays little more than inflation, leaving a thin real return before any currency risk.
For businesses, the cut should lower borrowing costs over time. But banks must still hold 45% of deposits at the central bank, which limits how much they can lend.
For people living in Nigeria, cheaper loans may take months to arrive. Savers holding naira bills will earn less as older, higher-yielding paper matures.
The scramble for yield and stability in African markets fits a wider story we follow at Africa: The New Scramble.
What to watch next
The first test comes this week, as N2.43 trillion (about US$1.8 billion) in bills matures. Large new bill sales would signal that controlling cash still outranks cheaper credit.
If the CBN lets the money stay in Nigerian banks, overnight rates could drift towards the 20% deposit rate. Nairametrics expects them to trade near that lower end of the new range.
The next inflation figure, for September, is due from the NBS in mid-October. A rise would put pressure on the CBN to mop up cash more aggressively.
Frequently Asked Questions
Why are Nigerian banks so full of cash right now?
Central-bank bills sold in earlier months are maturing and being repaid to holders. Spare liquidity rose to N5.98 trillion (about US$4.5 billion) in the week to 25 September.
What did Nigeria’s central bank decide on 22 September?
Its Monetary Policy Committee cut the benchmark rate from 26.5% to 23%. It kept the cash reserve requirement for commercial banks at 45%.
What does the rate cut mean for foreign investors?
Returns on short-term naira bills have dropped close to the 15.39% inflation rate. That leaves a thin real return before any currency risk.
Connected Coverage
Sources
- nairametrics.com
- businesspost.ng
- thisdaylive.com
- thisdaylive.com
- punchng.com
- punchng.com
- leadership.ng
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error
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