Nigeria’s overnight lending rates soared by 10 percentage points to a more than two-year high of 35 per cent on Wednesday, dealers said, after the Central Bank of Nigeria squeezed liquidity to support the local naira currency.

The naira closed at its firmest in two weeks, at N160.10 against the dollar on Wednesday, from N161.70 the previous day. It is still just outside the CBN’s N150 to N160 naira/dollar preferred trading band.

The Governor, CBN, Mr. Lamido Sanusi,has shown his determination to support the naira in recent months, despite calls from some in the private sector for him to ease interest rates to aid the growth of Africa’s second-biggest economy.

Sanusi said last month that interest rate cuts weren’t the answer to spurring growth and would risk higher inflation.

He said Nigeria, Africa’s biggest crude oil producer, was spending too much of its budget on government and should allocate more to development and to a savings buffer against the risks of lower oil output and weaker global demand.

Dealers said the central bank on Wednesday sold N142.1bn ($879m) in treasury bills and $318m at N155.83 to the dollar at its bi-weekly foreign exchange auction to reduce naira liquidity.

The CBN last week barred banks that borrow funds from its repo window from participating in foreign exchange auctions and lending to others on the inter-bank naira market.

“The market was short because many banks could not access the repo window for funds because of the central bank’s new rule restricting banks from trading funds from its repo in the interbank,” one dealer said.

Traders said the market opened with a cash deficit of about N120bn as banks scrambled for available naira to fund their foreign exchange purchases.

Source: Punch