The overnight lending rate of the interbank market fell to 50 per cent last week from a record high of 70 per cent after the Central Bank of Nigeria (CBN) refunded naira to dealers who participated at a dollar auction but did not win bids.
The central bank has been struggling to keep the naira within a new target band of N160 to N176 to a dollar it set after it devalued the currency last month, to halt a decline to its foreign reserves.
Dealers have to fund their naira account with the central bank two days in advance to be able to participate in the bank’s twice-weekly forex auction.
It was gathered that the central bank sold $199.9 million at its auction early last week, lower than the previous $289 million.
The shortage of dollars sold at the auction pushed extra demand to the interbank market, dealers said, causing the naira to weaken 0.27 per cent from its previous close.
The bank last month banned the sale of dollars to importers of telecom equipment, power generators and finished products at its foreign exchange auction.
“People are taking positions … thinking that the market is still far from where it should be. But liquidity is still very scarce,” one dealer said.
The central bank sold an undisclosed amount of dollars late onto the market, but dealers said the intervention was not enough to quell demand.
ExxonMobil also sold $50 million, to buy naira to fund its local obligations, dealers said.
The currency recovered to an intraday high of N176.85 yesterday after the dollar sales but it then quickly slipped back to close at N182.60 as the market absorbed the liquidity. It closed at N182.10 the previous day.
The balance that lenders hold with the central bank opened at a debit of N120 billion, down from N20 billion deficit the previous day. The banking system was about N400 billion in credit recently.
The bank has enforced a new cash reserve requirement for commercial lenders to curb liquidity and is squeezing cash from the system to try to support the naira.
The central bank had moved the midpoint of the official window from N155/$1 to N168/$1. In addition, it widened the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent. Similarly, the monetary policy rate (MPR) was increased from 12 per cent to 13 per cent, while the cash reserve ratio (CRR) on private sector deposits was also raised from 15 per cent to 20 per cent with immediate