LAGOS Oct 11 (Reuters) - Nigeria's naira strengthened sharply on Tuesday after a surprisingly aggressive central bank interest rate hike the previous day designed to draw a firm line under the currency of Africa's biggest oil producer.
The naira opened at 158.60 against the dollar on the interbank market, up 3.4 percent from Monday's close of 164.20 and 5 percent firmer than the record low of 167.8 plumbed shortly before Monday's unscheduled central bank meeting.
The unit eased to 161.2 by 0920 GMT.
The Central Bank of Nigeria (CBN) hiked its benchmark interest rate by 275 basis points to 12 percent and implemented several other tightening measures to counter pressures on the currency and inflation.
Most analysts had expected the CBN to raise rates by 100 basis points at the extraordinary meeting, which was called in response to a sharp depreciation of the naira.
The central bank has committed to keep the naira within a 3 percent band of 150 to the dollar, but that band has come under pressure in the last month due to concerns about inflation and high government spending.
The decline steepened this month after the central bank broke its rule of only selling dollars in the 145.5-154.5 range at its bi-weekly currency auctions -- a system designed to stabilise forex trading.
It has now sold dollars outside the weakest boundary of the band at its last three auctions as the gulf between the official window and interbank market has widened. Traders said this week's aggressive tightening should narrow this gap.
By selling dollars at auction, the CBN is eating into foreign reserves built up through the crude oil sales.
Despite high oil prices and production, reserves stand at $31.4 billion, down from $35.4 billion a year ago (Reporting by Chijioke Ohuocha; Writing by Ed Cropley; Editing by Anna Willard and Jon Herskovitz)
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