Lagos - The naira weakened on the interbank market on Monday as dollar demand outweighed supply, while lending rates dipped as banks tapped the central bank for cash.
The naira closed at 160.65 to the dollar on the interbank market, weaker than the 160.1 to the dollar it closed on Wednesday before a two day Muslim holiday.
Overnight and Open Buy Back Interbank lending rates fell to 14 percent, compared with around 19 percent on average on Wednesday, traders said.
The cost of borrowing among banks fell because some lenders chose to access the central bank repo window on Monday to obtain short-term funds, the traders said.
Strong demand for the greenback from some banks that had sold their position prior to the debiting of banks' accounts for a new cash reserves requirement on Wednesday pushed down the value of the naira.
"There was a lot of dollar demand from some banks ... this impacted negatively on the naira value because there was not commensurate supply of dollars," one dealer said.
About 1 trillion naira was withdrawn from banks' accounts on Wednesday by the central bank in line with its recent hike on cash reserves requirements for public sector deposits to 50 percent from 12 percent.
On the bi-weekly foreign exchange auction, the central bank sold $221.57 million at 155.75 to the dollar, compared with $248.45 million sold at the same rate on Wednesday.
"We see the naira depreciating further in the week as demand for the greenback persists," another dealer said.