Nigeria’s interbank lending rate rose sharply to 23 percent Friday from just five percent a week ago after the central bank tightened liquidity through sale of N167.60 billion ($459.56 million) in treasury bills and withdrew an undisclosed amount from lenders to maintain cash reserve ratio.
According to market analysts, the CBN action is to support the naira, making it scarcer in the market and more attractive to hold. The action would strengthen the currency, thereby helping to fight inflation.
Inflation in Nigeria is running at more than 16 percent annually while the country’s economy, clobbered by the low oil price has tumbled into recession over the past year.
The local currency, the naira, has weakened from around N200 to the U.S. dollar in mid-2016 to nearly N364 on Friday, a 45 percent decline in value.
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The treasury bills sold Friday include 356-day open market operation bills at 18.55 percent, and 188-day paper at 17.95 percent.
The total banking credit balance opened at N75 billion, but outflows from the system led the market into negative territory, traders said.
Analysts and traders see the cost of borrowing rising further as the market struggle with tight liquidity and banks seek to cover their positions.