LAGOS, Oct 12 (Reuters) - Nigeria’s overnight lending rate dropped to 20 percent on Thursday on expectation that a cash squeeze will ease after money market rates more than doubled previous session.
Nigeria’s central bank has kept liquidity tight to support the currency, leaving its benchmark interest rate on hold at 14 percent this year. It also aims to keep rates high to attract foreign inflows into its bond market to boost dollar liquidity.
“The market is a bit tight because of FX purchases which mopped up (naira) liquidity,” one trader said.
The overnight rate closed at 44 percent on Wednesday after banking system liquidity hit a debit of 265 billion naira, traders said. Tight liquidity continued on Thursday with the market in debit of 243 billion naira although the central bank repaid some treasury securities.
Traders said money market rates dropped on Thursday as lenders accessed the central bank window for naira at 16 percent.
Though rates could go back up if a 60 billion naira treasury security offered by the central bank on Thursday worsened the cash squeeze.
The central bank is selling $100 million weekly to meet wholesale currency demand and also a separate amount twice weekly for retail needs to keep its multiple exchange rate system stable. (Reporting by Chijioke Ohuocha Editing by Jeremy Gaunt.)