January 20, 2015 / 9:09 AM / 5 years ago

UPDATE 1-Naira eases sharply before Nigerian central bank rate decision

(Adds comments from a dealer, background)

LAGOS, Jan 20 (Reuters) - Nigeria’s naira eased sharply in volatile early trades on Tuesday, as dollar liquidity dried up on the interbank market before a central bank decision on interest rates, dealers said.

The central bank is expected to keep its main interest rate on hold at 13 percent on Tuesday, having raised it a hefty 100 basis points in November in an attempt to draw a line under the currency’s weakness.

The naira opened at 187.10, a record low level at which it closed the previous day, but quickly weakened to 188.90 by 0859 GMT as demand for dollars surged.

The central bank has been selling dollars on the interbank market to help the naira and also to meet demand for hard currency. But the naira is still under pressure as the price of oil, Nigeria’s main export, plunges.

At November’s interest rate meeting, the central bank was forced to devalue the naira by 8 percent to 160-176 to the dollar, to save its foreign reserves, but since then the oil price has dropped more than a third, exacerbating governor Godwin Emefiele’s concerns about dwindling reserves.

“Dollar supply has been very tight. The central bank has been supplying us but it’s not enough,” one dealer said.

The central bank sold $199.9 million at 168 naira at its twice-weekly forex auction on Monday, the same amount it offered, to help meet demand for hard currency. (Reporting by Chijioke Ohuocha; Editing by Janet Lawrence/Ruth Pitchford)

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