LAGOS Oct 13 (Reuters) – Nigeria’s forex interbank market halted trading on Thursday due to a dollar shortage after state-owned energy firm NNPC sold dollars meant for lenders to the central bank, dealers said.

The market had expected around $700 million from the NNPC, boosting dollar liquidity at the interbank, but instead the state-owned energy firm sold the greenback to the central bank.

“Nobody is showing quotes on the naira at the moment,” one dealer said, adding that the diversion of NNPC funds was causing illiquidity in the market.

Currency traders stopped dealing on the local currency on Thursday after the interbank market traded at a value of 160 naira to the U.S.dollar, much higher than central bank’s Wednesday auction value of 150 naira.

The unit opened at 157.10 on thin volumes, dealers said.

After the central bank emergency meeting on Monday, it back its tightening policy by clearing all dollar demand at its bi-weekly auction at 150 naira to the greenback and also pumped $200 million at 153 naira into the interbank market.

Dealers expected the unit to firm close to the auction rate on Thursday but instead interbank market weakened to 160.70 naira at 1157 GMT on thin volumes.

The central bank raised its benchmark interest rate by 275 basis point to 12 percent on Monday and limited net open positions for banks to 1 percent from 5 percent, among other tightening measures.

“Reducing the fx net open position of banks to 1 percent effectively shuts down the interbank forex market which could negatively weigh on banks’ revenue,” said Samir Gadio, Standard Bank’s emerging market strategist, adding that forex market shut down in 2009 on similar central bank policy.

Dealers say the central bank may have spent close to $1.2 billion after it emergency meeting on Monday and its bi-weekly auctions trying to prop up the naira, adding that a more realistic value for the unit could be at 160 naira.

Nigeria’s foreign reserves stood at $30.86 billion at Oct. 7, declining to multi-year lows, without reflecting dollars sold this week, meaning that central bank’s bold actions are not without cost. The reserves stood at $34.84 billion a year ago.

“There is confusion over the CBN’s ability to sustain the 150 rate if we still want to have money left in our reserves,” another dealer said.

Source: Reuters / (Reporting by Chijioke Ohuocha and Oludare Mayowa; Editing by Toby Chopra)