The Central Bank of Nigeria on Friday mopped up about N206 billion from the interbank market in a bid to drive out excess liquidity. Excess liquidity refers to the cash circulating within the economy which the CBN feels is driving up inflation or lowering interest rates.
Analysts believe this was carried out in anticipation of the planned implementation of the flexible exchange rate policy set to start in Monday 20th June 2016.
According to a Reuters report,
Banking system credit opened at 1.06 trillion naira ($5.3 bln) on Friday, compared with 401.72 billion naira last week, traders said.
The excess liquidity prompted the central bank to sell 205.9 billion naira ($1.03 billion) worth of one-year bills on Friday at 13.5 percent, compared with the secondary market rate of 10.81 percent, traders said. The bank had offered 78 billion naira in bills on Thursday.
By mopping up the excess liquidity, the CBN is effectively hoping that there will be less Naira available to chase the dollars when the new interbank market eventually opens on Monday. Analysts opinion monitored since the announcement was made on Tuesday suggest that the exchange rate could open at any price within N250 and N370 indicative of the type of uncertainty currently existing in the minds of most people.