Banks sharply reduced their overnight deposits with the Central Bank of Nigeria (CBN) through the Standing Deposit Facility (SDF) by N941.85 billion in one day, as the apex bank continued to withdraw excess liquidity from the financial system through Open Market Operations (OMO).

CBN data showed that banks' SDF placements fell from N4.70 trillion on October 6 to N3.76 trillion on October 7, representing the largest single-day decline since September 30.

The latest reduction came a day after the CBN mopped up N3.31 trillion from the banking system through an OMO auction, while about N2.17 trillion in maturing OMO bills flowed back into the system. The transactions resulted in a net liquidity withdrawal of about N1.14 trillion.

The development suggests that banks had less excess cash available for overnight placement with the CBN following the latest liquidity operations.

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According to Cordros Securities, the overnight lending rate rose by 25 basis points to 22.2 per cent on Tuesday, despite the maturity inflows.

At the October 6 OMO auction, investors submitted N3.511 trillion in bids against the N2 trillion initially offered by the CBN. The apex bank eventually allotted N3.309 trillion, with the 182-day bill accounting for N2.671 trillion, or 80.7 per cent, of the total.

Investors submitted N2.693 trillion for the 182-day instrument, representing 2.69 times the N1 trillion offered. It cleared at 16.92 per cent and is scheduled to mature on April 6, 2027.

The 147-day bill attracted N817.95 billion in bids against N1 trillion offered, with the CBN allotting N637.20 billion at a stop rate of 17.22 per cent.

The stop rates were slightly lower than those recorded at the September 29 auction, when the 147-day and 182-day instruments cleared at 17.24 per cent and 16.94 per cent respectively.

The strong demand for the longer-term bill indicates investors' willingness to lock funds into the instrument despite its slightly lower yield.

The latest movement in SDF balances also comes against the backdrop of substantial liquidity withdrawals by the CBN in September. The apex bank sold about N17.51 trillion in OMO bills during the month, while N10.89 trillion matured, resulting in a net withdrawal of approximately N6.62 trillion.

Banks' SDF placements had reached a peak of N7.52 trillion on September 24, after rising to N7.34 trillion a day earlier. The balance subsequently declined to N5.90 trillion on September 25 before rising to N6.01 trillion on September 28.

It stood at N6.28 trillion on September 29 but fell to N4.55 trillion the following day.

SDF placements rose again to N4.86 trillion on October 5 and N4.70 trillion on October 6 before dropping below the N4 trillion mark on October 7.

The SDF is an overnight liquidity-absorption facility through which banks place excess funds with the CBN.

The latest liquidity movement followed the Monetary Policy Committee's decision on September 22 to reduce the Monetary Policy Rate by 350 basis points to 23 per cent, while retaining key reserve requirements.

The Cash Reserve Ratio for commercial banks was retained at 45 per cent, while that of merchant banks remained at 16 per cent. The committee also maintained the 75 per cent CRR on non-TSA public sector depos