In a proactive move to combat the adverse effects of soaring prices on the nation’s economy, the Central Bank of Nigeria (CBN) has significantly reduced its cash mop-up operations by a substantial 82 percent.
This reduction, which saw the CBN’s cash mopping efforts drop from N830 billion in the corresponding period in 2022 to N150 billion in the nine months ending on September 30th, 2023, is aimed at reviving economic growth.
Banking sector’s idle cash balances
As a consequence of this strategic shift, the banking sector has witnessed a remarkable 46 percent surge in the average opening balance of idle cash during this period.
The CBN, in its role of managing money supply, periodically conducts cash mop-up or infusion activities within the banking system through the sale or redemption of Open Market Operations (OMO) Treasury Bills (TBs).
When aiming to reduce money supply and curb inflation, the CBN sells OMO TBs. Conversely, when seeking to boost money supply to stimulate economic growth, it repays maturing OMO TBs with interest to banks and investors.
Nevertheless, the extent to which this drastic reduction in cash mop-up measures has effectively stimulated economic growth over the past nine months remains uncertain.
Inflation has continued to rise steadily, and the Gross Domestic Product (GDP) has shown sluggish growth trends.
Data obtained from the CBN regarding OMO TBs transactions reveals that the central bank sold N150 billion worth of OMO TBs in the first nine months of 2023, a stark decrease from the N830 billion sold in the same period in 2022.
The amount of maturing OMO TBs repaid by the CBN plummeted by 82 percent to N313.52 billion in 9M’23, compared to N1.741 trillion in 9M’22.
Consequently, 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, due to the significant reduction in CBN’s cash mop-up activities, the banking industry saw a 46 percent increase in the average daily cash balance, which surged from N214.87 billion in 9M’22 to N407.13 billion in 9M’23.