Banks’ deposits with the Central Bank of Nigeria (CBN), known as the Standing Deposit Facility (SDF), rose to a seven-month high of N7.33 trillion a day after the apex bank reset its benchmark interest rate, reflecting elevated liquidity in the financial system.
Data obtained from the CBN showed that SDF holdings jumped by 62.75 percent in a single trading day to N7.33 trillion on Wednesday, from N4.51 trillion on Tuesday.
The last time banks’ deposits with the apex bank reached a comparable level was on March 30, 2026, when SDF holdings stood at N7.09 trillion.
Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto and Co., said the development reflected the high level of liquidity in the financial market.
The increase came a day after the CBN, following its two-day Monetary Policy Committee (MPC) meeting, cut its benchmark interest rate, the Monetary Policy Rate (MPR), by 350 basis points to 23 percent from 26.5 percent.
The unusually large rate cut followed a period in which prevailing money-market rates had moved below the previous 26.5 percent policy benchmark, weakening the effectiveness of the MPR as a signal for market interest rates.
Analysts at Coronation Merchant Bank said much of the rate adjustment has already been priced into the front end of the fixed-income market. The 364-day Nigerian Treasury Bill (NTB) stop rate fell by 97 basis points across the three auctions preceding the decision, from 17.59 percent on August 26 to 16.62 percent on September 9.
‘We expect a further 100-150 basis points of compression over the next one or two auctions, taking the rate toward 15.00-15.50 percent, after which we expect the decline to stall. At 16.62 percent, one-year bills already clear roughly 540 basis points below the prevailing overnight rate, meaning the position offers structurally negative carry for banks. The demand has instead been driven by pension fund administrators (PFAs) and asset managers with captive naira liquidity.’
They said the reset of the Standing Deposit Facility (SDF) rate to 20.00 percent narrows that negative carry to around 340 basis points, which mechanically supports demand for NTBs, but does not eliminate the underlying constraint.
According to them, the key instrument to watch is Open Market Operations (OMO). The CBN allotted approximately N4.40 trillion in a single week in September, with 154-day OMO paper issued at an effective yield of 19.96 percent. The spread between OMO and NTB yields is therefore a more meaningful measure of the CBN’s monetary-policy stance.
‘If OMO stop rates begin to follow the Monetary Policy Rate lower, it would indicate that the easing cycle has genuinely begun. However, if OMO yields remain close to 20 percent while NTB yields continue to fall, the segmentation between the two instruments will deepen, reinforcing the message that the CBN is not yet easing through its market operations,’ Coronation analysts said.
The CBN also narrowed the asymmetric corridor around the MPR to +50 basis points/-300 basis points, from +50 basis points/-450 basis points previously.
Razia Khan, managing director and chief economist, Africa and Middle East Global Research at Standard Chartered Bank, explained that the new Standing Lending Facility rate is 23.5 percent, down from 27 percent previously.
The theoretical floor for interest rates in the economy, represented by the Standing Deposit Facility rate, is now 20 percent, compared with 22 percent previously.
Adewale-Smatt Oyerinde, director-general of the Nigeria Employers’ Consultative Association (NECA), said the revised corridor places the Standing Lending Facility at 23.5 percent and the Standing Deposit Facility at 20 percent.
He said the adjustment could support improved liquidity management and strengthen monetary policy transmission.
The sharp reduction in the MPR is also expected to influence the relative attractiveness of fixed-income and equity investments as yields adjust across financial markets.
Olubunmi said the reduction in the benchmark rate was expected to push fixed-income yields lower, creating conditions that could support a rally in the equity market.
‘We expect a decline in fixed income yields but this will support the rally in the equity market,’ he said.
The rate cut represents a major recalibration of monetary policy after a prolonged period of tight monetary conditions. The Centre for the Promotion of Private Enterprise (CPPE) described the 350-basis-point reduction as a significant shift away from the restrictive monetary policy regime towards growth, investment and economic recovery.
The CPPE said the adjustment could change the relative attractiveness of financial assets as investors respond to movements in fixed-income and equity-market yields.
The decision also comes against a backdrop of easing inflation. Headline inflation stood at 15.39 percent in August 2026, while prevailing money-market rates had been around 20 percent, creating a significant gap with the previous 26.5 percent MPR.
: Naira records gains in black market despite rate cut
According to the CPPE, the disparity had weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission.
It therefore viewed the reduction to 23 percent as a realignment of the policy rate with prevailing macroeconomic and financial-market conditions.
The potential reallocation of funds could be reinforced by lower returns on government securities as the impact of the rate cut filters through the fixed-income market.
The CPPE said sustained moderation in interest rates could also reduce the marginal cost of government borrowing and, over time, help moderate the Federal Government’s domestic debt-service burden.
However, it noted that the fiscal benefit would depend on the extent to which the MPR adjustment translates into lower yields across the government securities market.
For businesses, the rate cut could reduce financing costs and improve access to credit, although the CPPE and NECA cautioned that a lower policy rate would not automatically result in cheaper loans.
NECA said the retention of the Cash Reserve Requirement (CRR) at 45 percent for Deposit Money Banks indicates that monetary conditions remain relatively tight despite the reduction in the benchmark rate.
Oyerinde said the rate cut could support lower lending rates and improve access to working capital and investment financing, particularly for manufacturers and small and medium-sized enterprises.
However, he said the speed and extent of the transmission would depend on how banks respond by adjusting their lending rates.
The CPPE similarly said the economic impact of the decision would depend largely on effective transmission, with banks expected to progressively adjust lending rates on new and existing facilities.
The revised interest-rate corridor could also influence liquidity conditions across the financial system. By setting the Standing Deposit Facility at 20 percent and the Standing Lending Facility at 23.5 percent, the CBN has reduced the range within which short-term market rates can move around the policy rate.
NECA said the new corridor could support improved liquidity management and monetary policy transmission.
Despite the potential benefits for equities and the broader economy, the sharp reduction in interest rates also presents risks for portfolio flows and the foreign-exchange market.
The CPPE said the divergence between Nigeria’s monetary policy direction and tightening by some major central banks could affect interest-rate differentials and the relative attractiveness of naira-denominated financial assets.
This could increase the risk of portfolio-flow reversals and renewed pressure on the foreign-exchange market.
However, the CPPE said Nigeria was entering the policy transition with stronger external buffers than in previous episodes of monetary easing, citing improved foreign reserves and greater stability in the foreign-exchange market.
It urged the CBN to remain vigilant and deploy instruments such as open-market operations where necessary to manage excessive liquidity and volatility while preserving exchange-rate stability.
The CPPE also cautioned that lower interest rates alone would not guarantee a sustained economic recovery, noting that structural constraints including high energy costs, logistics bottlenecks, insecurity, food-production challenges, infrastructure deficits and regulatory costs continue to weigh on businesses.
For investors, the key issue following the 350-basis-point reset will be how quickly lower policy and fixed-income yields influence asset allocation. For businesses and households, attention will centre on whether the reduction in monetary-policy rates eventually translates into meaningful declines in borrowing costs.