LAGOS, May 19 (Reuters) - Nigeria's overnight lending rate dropped to 26 percent on Friday from 65 percent a day earlier after the central bank refunded excess naira offered in an earlier dollar sale to commercial lenders, injecting liquidity back into the money market.
Traders said that a cash squeeze on the money markets on Thursday after lenders provided naira to participate in a central bank currency intervention had pushed the overnight rate sharply higher.
The banking system's cash balance with the central bank stood at 24.61 billion early on Friday before the central bank refund.
"We see rates easing further next week. We anticipate about 200 billion naira would be disbursed to government," one currency trader said.
The central bank sells hard currency regularly on the interbank market to boost dollar liquidity but in turn mop-up the naira. If it does not take up all offers, the excess naira are returned to lenders. Mired in recession, Nigeria is grappling with a currency crisis and dollar shortage brought on in part by the low price of oil, the cornerstone of Africa's largest economy.
The naira closed at 305.45 to the dollar on the spot market on Friday, and was quoted at 381 on the black market. It was quoted at 382 per dollar at a trading window for investors. (Reporting by Oludare Mayowa; Editing by Chijioke Ohuocha)