By Odunewu Segun
Nigeria’s overnight lending rate rose by 2.5 percentage points this week after the Central Bank of Nigeria debited bank accounts for debt purchases, draining liquidity in the money market.
The CBN sold around $250 million forwards at a special auction and an undisclosed amount at the spot market in its bid to improve dollar liquidity and support the country’s ailing naira currency.
The sales drew liquidity out in the money market and pushed up the interest rate.
Although the apex bank repaid around 234 billion naira in matured Treasury bill on Thursday, the same amount was rolled over into another set of treasury bills sold at an auction on the same day.
Market liquidity stood at around 35.06 billion naira surplus on Thursday, compared with 40 billion naira in surplus last week.
Traders said the cost of borrowing among commercial lenders may further increase next week as the central bank continues to inject more dollars into the foreign exchange market to defend the local currency.
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The value of the naira has plummeted in the last few weeks due to a scarcity of dollars, although its value has fluctuated in the last few weeks due to the central bank’s interventions.
Meanwhile, the Naira weakened on the black market to N405/$ compared with N395 it exchanged for on Thursday, despite series of currency forwards sold by the CBN this month to clear demand for the U.S. currency on the official market, traders said.
The apex bank has sold more than $1 billion on the forward market since February. It auctioned $250 million in forward sales this week to boost liquidity and also intervened on the spot market.
Traders said the forward sales have improved liquidity but left the spot market inactive, leaving importers that want hard currency for immediate use reliant on the black market.
The CBN has been intervening on the official market this year to try to narrow the currency gap with the black market rate, which hit 520 to the dollar in February, prompting the bank to devalue the naira for consumers to 375.
February’s partial devaluation created multiple exchange rates, making it difficult to attract inflows as investors struggle to price naira assets, analysts say.