On October 7, 2026, banks in Nigeria made a significant cut to their deposits with the Central Bank of Nigeria (CBN) through the Standing Deposit Facility (SDF), reducing the total by N941.85 billion to N3.76 trillion. This marked the largest single-day decline since late September, reflecting a notable shift in liquidity management among financial institutions.
The drastic reduction in SDF deposits comes on the heels of the CBN's decision to lower the Monetary Policy Rate (MPR) by 350 basis points to 23% on September 22. This move aimed to stimulate economic activity amid rising inflation and economic challenges. The SDF serves as a crucial tool for the CBN to absorb excess liquidity in the banking system, and the recent fluctuations indicate banks' responses to changing monetary policy dynamics. Notably, SDF deposits had previously peaked at over N7 trillion in late September, showcasing the volatility in banks' liquidity strategies.
Looking ahead, market participants should closely monitor how banks adjust their liquidity positions in response to ongoing monetary policy changes. With the MPR now set at 23% and reserve requirements unchanged, the balance of power in the banking sector may shift, influencing lending rates and investment strategies. This situation could have broader implications for the Nigerian economy and, by extension, the African financial landscape as investors gauge the stability and responsiveness of monetary policy in a challenging economic environment.