Nigeria’s overnight lending rate rose sharply to around 50 percent on Friday, from an average of 4.5 percent the previous day, after the central bank debited commercial lenders’ accounts for special forex sales, traders said.
Nigeria’s central bank on Monday asked banks to submit bids for a “special currency auction” to clear the backlog of matured outstanding dollar obligations for selected sectors of the economy, which include airlines, fuelIMPORTERS and manufacturing firms.
Traders said the central bank sold “funded forwards of two to five months tenor” dollars to the targeted sectors at an auction this week and required them to pay for the dollar sale on Friday. The central bank is yet to disclose the amount sold butCURRENCY TRADERS said the cost of borrowing among banks climbed because of a scramble for funds among commercial lenders to pay for the forex purchases.
“The market is extremely volatile today as a result of the funding for the special forex auction, and we have seen rates up to around 50 percent and more,” one currency dealer said. Another dealer said his bank received around $11 million from the special forex sales, but were awaiting details of the total dollars sold to other banks at the auction.
Nigeria is in its first recession in 25 years, caused by low global oil prices which have cut the supply of dollars needed to fundIMPORTS. Attacks by militants on pipelines in the oil-rich Niger Delta since January have cut crude output, reducing dollars earned.
The dollar shortage in the OPEC member, whose crudeSALES MAKE UP two-thirds of government revenue, has caused many companies to halt operations and lay off workers, compounding the economic crisis. The naira currency has traded at around 305.5 naira to the dollar on the official interbank market since August, while it was quoted at 495 to the dollar on the parallel market on Friday.