Endogenous Liquidity Shocks and Liquidity Liquidity management, monetary policy transmission, structural liquidity surplus, sterilisation.Management Dilemma in Nigeria

Authors

Temitope J. Laniran, Central Bank of NigeriaFollow
Hamza Abdulaziz, Central Bank of NigeriaFollow
Nuruddeen Usman, Bank of England

Keywords

Liquidity management, monetary policy transmission, structural liquidity surplus, sterilisation.

Abstract

This paper examines the Central Bank of Nigeria’s (CBN) liquidity management framework over a period marked by aggressive monetary tightening in response to persistent inflationary pressures. The analysis suggested that despite sustained sterilisation efforts through CRR debits and open market operations (OMO), liquidity surpluses persisted, driven largely by autonomous factors such as fiscal injections, maturing OMO bills, and foreign exchange interventions. The resulting structural liquidity surpluses periodically weakened the alignment between short‐term interest rates and the policy corridor, highlighting operational frictions and transmission inefficiencies. The paper opines that heavy reliance on blunt liquidity‐absorbing instruments without addressing the root causes of liquidity surpluses limits the effectiveness of monetary tightening. Policy recommendations include enhancing fiscal–monetary coordination, adopting a more predictable OMO schedule, diversifying sterilisation instruments, and strengthening liquidity forecasting frameworks. The findings underscore that in structurally imbalanced economies, sustainable price stability requires a forward‐looking and integrated liquidity management approach that goes beyond reactive sterilisation measures.

Author Bio

Dr. Temitope J. Laniran is an Economist at the Central Bank of Nigeria and a Non-Resident Research Fellow of the Nigerian Economic Society, with teaching and research experience across UK and Nigerian institutions. Abdulaziz Hamza is an Economist at the Central Bank of Nigeria, where he has served in the Monetary Policy and Financial Markets Departments, and a 2024 winner of the IMF/AFRITAC West 2 Young Economist Research Contest. Nuruddeen Usman, CFA is an Economist at the Bank of England and former Central Bank of Nigeria economist, with research interests in financial economics and memberships in professional bodies including the Royal Economic Society and the Nigerian Economic Society

Publication Title

Bullion

Issue

4

Volume

49

First Page

75

Last Page

88

Recommended Citation

Laniran, Temitope J.; Abdulaziz, Hamza; and Usman, Nuruddeen (2025) "Endogenous Liquidity Shocks and Liquidity Liquidity management, monetary policy transmission, structural liquidity surplus, sterilisation.Management Dilemma in Nigeria," Bullion: Vol. 49: No. 4, Article 6.
Available at: https://dc.cbn.gov.ng/bullion/vol49/iss4/6