Nigeria's overnight interbank lending rate rose sharply to 29.5 percent on Friday, up from 19 percent last week, after the central bank sold treasury bills to soak up liquidity from the banking system in a bid to curb pressure on the naira.
Traders said the central bank sold about 17 billion naira ($55.81 million) worth of open market operations (OMO) paper on Friday and also soaked up about 110 billion naira in bonds settlement.
"The interbank rate ranged between 20-50 percent intraday because of the huge amount of liquidity soaked out of the market by the central bank today, but the rate eventually closed at around 29.5 percent for the overnight," one trader told Reuters.
Nigeria has stepped up the frequency of treasury bill sales recently to soak up excess liquidity in a move to curb pressure on the local currency, leaving the market dry and banks scrambling for cash to cover their positions at higher borrowing cost.
Traders said the central bank repaid about 87 billion naira in matured OMO bills on Thursday but this was less than the volume of cash outflow for treasury bills, bonds and forex purchases.
"The money market is expected to remain illiquid in the coming days while we see rates climbing further as the central bank continue to mop-up liquidity from the market," another trader said.
Nigeria plans to auction 110 billion naira of treasury bills on May 17.
The local currency closed flat at 305.60 to the dollar on the interbank market and was quoted at 390 per dollar on the black market. At the investor trading window, the naira was quoted at 383 per dollar, data from market regulator FMDQ OTC Securities Exchange showed.