Nigeria’s interbank overnight lending rate spiked further by 20 percentage points on Tuesday to 80 percent following drop in liquidity on large naira cash withdrawal by the state-owned energy company.
“The NNPC withdrew more cash from the system today, hitting hard on some banks, which have to resort to borrowing heavily from other banks to cover their position,” one dealer said.
NNPC last week sold about $300 billion naira to some lenders as part of its usual month-end dollar sales and put the naira proceeds into its account with the central bank.
The cost of borrowing among banks has oscillated between a high of 70 percent and a low of 14 percent since last month, when the central bank hiked the cash reserve requirement (CRR) on private sector deposits with commercial lenders to 20 percent from 15 percent, reports Reuters.
And in a related development, Nigeria’s Central Bank intervened on the interbank market on Tuesday to prop-up the naira, but the local unit still closed down 1 percent owing to strong dollar demand, traders said.
The local currency closed at 180.50 to the dollar, compared with 178.70 a dollar on the previous day.
Dealers said dollar demand remained strong from offshore funds selling down their equity holdings.
“The amount of dollars sold by the central bank was not sufficient to support the naira,” one dealer said.
The local currency is seen trading around the 180 level until the end of the year, baring any major measure by the central bank, dealers said.