By Odunewu Segun

Nigeria’s overnight lending rate has dropped to 20 percent amidst expectation that a cash squeeze will ease after money market rates more than doubled previous session.

Nigeria’s central bank has kept liquidity tight to support the currency, leaving its benchmark interest rate on hold at 14 percent this year. It also aims to keep rates high to attract foreign inflows into its bond market to boost dollar liquidity.

“The market is a bit tight because of FX purchases which mopped up (naira) liquidity,” one trader said.

The overnight rate closed at 44 percent on Wednesday after banking system liquidity hit a debit of 265 billion naira, traders said. Tight liquidity continued on Thursday with the market in debit of 243 billion naira although the central bank repaid some treasury securities.

Traders said money market rates dropped on Thursday as lenders accessed the central bank window for naira at 16 percent.

Though rates could go back up if a 60 billion naira treasury security offered by the central bank on Thursday worsened the cash squeeze.

The central bank is selling $100 million weekly to meet wholesale currency demand and also a separate amount twice weekly for retail needs to keep its multiple exchange rate system stable.

Meanwhile, Nigeria’s naira will likely hold ground across its multiple exchange rates next week as the central bank continues to intervene on the official market to boost dollar liquidity, traders say.

The local currency has traded at around 360 per dollar for investors with a volume of almost $600 million this week.

Traders say the central bank has been selling around $100 million weekly for wholesale dollar demand and also a separate amount twice weekly for retail needs.

On the official market, where the central bank has been selling $500,000 daily to lenders, the naira firmed slightly to 305.55 per dollar at 1500 GMT.