Tue Feb 17, 2015/Reuters

Nigeria’s central bank intervened for the third straight session on Tuesday to defend the naira by selling dollars below its official band but the currency traded weaker in the interbank market.

Dollar sales by an oil firm were traded at a weaker level than in the earlier sale by the central bank, dealers said.

The bank once again sold dollars below its official band, at 198 naira to the U.S. currency, and again banned banks from reselling dollars bought at its currency auction to other banks to curb speculation.

All the trades by the bank have been outside its own target band of 160-176 to the dollar set in November when it devalued the currency by 8 percent to save its foreign reserves. On Monday and Tuesday, it sold dollars at 198 naira, dealers said.

“The market is weaker than the central bank rate … counterparties are selling dollars based on how they were able to buy it,” a dealer at a major lender said.

The naira crashed through a psychologically important level of 200 to the dollar last week in a rout triggered by weak oil prices and escalating tension over the postponement of a presidential election Africa’s biggest economy, prompting the central bank to step up its intervention.

The central bank has been selling dollars in a special intervention since Friday, spending $380 million in two-days to shore up the naira and curb speculative attacks, which it says is the reason behind the weaknesses in the currency.

Addax Petroleum sold $7 million to some lenders to buy naira for its local obligations, testing the naira’s true level as the currency immediately weakened to 203.50 to the dollar.

The central bank’s special interventions have kept the naira trading within a range of between 197 to 199.50.

However, there has been no interbank trading at that level as liquidity is thin on the market and commercial banks are restricted from selling dollars bought from the central bank.

Tight interbank liquidity undermines Nigeria’s credibility as a smoothly functioning capital market, which could trigger its ejection from a JP Morgan emerging market bond index.

JP Morgan added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included.