Nigeria’s naira traded flat on the interbank market on Monday as lenders exited the U.S. currency to cover their funding needs on the local currency amid tight naira liquidity.

The central bank withdraw 242 billion naira from the banking system two weeks ago to enforce a new cash reserve requirement (CRR), aimed at tightening naira liquidity to support the currency.

The regulator removed 1 trillion naira in August when it first announced a hike to CRR for banks to take on public sector funds to 50 percent from 12 percent.

 

The naira closed at 161.9 to the greenback, the same level it closed on Friday.

A dealer told Reuters that a naira shortage on the market had caused banks to exit their dollar positions, to meet obligations in local currency.

“We see slowing demand for the dollar this week … which should help stabilise naira within the present range,” another dealer said.

Tighter liquidity has also driven interbank lending rates higher. Last Friday, interbank rate climbed to an average of 26 percent, on central bank policy moves compared with 18 percent the previous week.

At the official foreign exchange window, the central bank sold $300 million at 155.76 to the dollar, the same amount and rate it auctioned last Wednesday.

Source: Reuters (Reporting by Oludare Mayowa)