LAGOS, July 21 (Reuters) - Nigeria's interbank lending rate rose to around 20 percent, from 5 percent on Thursday, after the central bank sold treasury bills to mop-up excess liquidity and announced plans to sell dollars to businesses.
The interbank rate reflects the level of naira cash liquidity in the banking system.
The central bank said in a notice to commercial lenders on Friday it would sell dollars to manufacturers, airlines, fuel importers and agriculture businesses at a special auction to clear their backlog of foreign exchange obligations.
Traders said the auction and sales of treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market. That pushed up the cost of borrowing among lenders.
The central bank sold 86.25 billion naira ($283 million)worth of 365-day and 195-day treasury bills on Friday in a bid to reduce excess liquidity following the government's distribution of debt refunds to some states on Monday.
Traders said some banks initially quoted as high as 50 percent for overnight placement but this fell to around 15-20 percent toward the market close.
"We expect the interbank rate to trend down further after results of the special forex auction are announced and more liquidity flows into the market," one currency trader said. ($1 = 304.8000 naira) (Reporting by Oludare Mayowa; editing by Alexis Akwagyiram and Alexander Smith)