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Nigeria's central bank opens discount window to cover forex demand
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- Nigerian Interbank Offered Rate rose to 74.4 percent on Wednesday, from 51 percent on Tuesday.
The Central Bank of Nigeria (CBN) opened the discount window for banks on Wednesday to enable Nigerian banks meet their short-term dollar demands and also address liquidity shortfalls in the banking system as the financial institutions ramp up dollar purchase.
The CBN launched the new interbank flexible foreign exchange market on Monday and auctioned $4.2 billion to clear a backlog of forex orders. The apex bank has continued to intervene in the interbank forex market, taking out a substantial amount of naira out of the banking system.
The development has triggered a rise in the overnight tenor of the Nigerian Interbank Offered Rate (NIBOR) as it rose to 74.4 percent on Wednesday, from 51 percent on Tuesday, according to FMDQ OTC Securities Exchange, an over-the-counter market operator for fixed income securities.
The CBN has opened the discount window to avert a liquidity crisis in the banking system. Apart from the the rise in the overnight lending rate, the open buy back (OBB), money market instruments used to raise short term capital, rate also climbed to 63.33 percent on Wednesday, compared to 45 percent the previous day.
The naira appreciated by N2.03 on Wednesday to close at N282.80 against the dollar on the third day of trading on the interbank forex market. The naira fell by 42 percent to N281.85 per dollar at the launch of the revived interbank forex market on Monday and further weakened to N284.83 to the dollar on Tuesday.
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