LAGOS: Nigeria's central bank removed an estimated 1 trillion naira ($6.27bn) from the banking system on Wednesday, causing interbank lending rates to spike by 7 percentage points from Tuesday's close, but failing to lift the naira, dealers said.
Interbank lending rates rose to around 19 percent on Wednesday, up from around 12 percent at Tuesday's close, after the central bank debited lenders accounts to meet a hike in the CRR on public sector deposits to 50 percent, from 12 percent previously.
The bank said it would impose the requirement two weeks ago to tighten liquidity and support the naira.
But the naira fell slightly against the dollar, closing at 160.10 to the dollar on the interbank market, weaker than the 159.65 to the dollar it closed at on the previous day.
Dealers said this was because banks had already sold their dollar positions to meet the new requirement ahead of Wednesday, so the impact had already been priced in.
"The central bank finally debited our accounts today, draining the market of liquidity and the overnight rate went up to 19 percent," one dealer said.
Traders said many lenders had already sold down liquid assets and dollars to replenish their cash balances in preparation for the withdrawal.
"The market had priced the effect of the huge cash withdrawal since the announcement two weeks ago, while fresh dollar demand and lack of dollar flows are expected to push down the value of the naira next week," another dealer said.
Analysts say Nigeria will need to attract back foreign inflows for the central bank's move to have a sustained positive effect on the naira.
Africa's top oil producer is a growing destination for foreign investors, but it remains vulnerable to capital flight. Efforts to defend the naira helped shrink foreign reserves to $46.96 billion by end-July, from $48 billion in June.
On the bi-weekly foreign exchange auction, the central bank sold $248.45 million at 155.75 to the dollar, compared with $285 million sold at the same rate on Monday.
The bank has spent billions of dollars of foreign reserves over the past two months on keeping the naira within its target corridor of plus or minus 3 percent around 155 to the dollar.
The secured Open Buy back (OBB) rose to 18 percent from 11.5 percent on Friday, six percentage point higher than the central bank's benchmark interest rate.
Overnight placement edged higher at 19 percent from 11.5 percent, while call money closed at 20 percent, eight percentage points higher than the 12 percent it closed on Friday.
Dealers expect interbank rates to rise further early next week after the market reopens from a 2-day Muslim holiday but should moderate toward the end of the week on the back of additional cash flows from matured treasury bills.
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