The Central Bank of Nigeria's (CBN) monetary policy committee (MPC) hiked its benchmark interest rate by 275 basis points to 12 percent and implemented several other tightening measures to counter external pressures on the currency and inflation.

"The committee recognized the need to remain very clear on the bank's primary mandate and maintain the credibility it has established so far by sending strong signals on price and exchange rate stability," CBN Gov. Lamido Sanusi said.

"In the face of the specter of declining oil prices, declining foreign reserves, increased demand for foreign exchange, fiscal dominance and capital flow reversals, monetary policy must bear a larger burden of economic adjustment in the short-term," he added.

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 naira touched a new all-time low against the US dollar in the interbank market and weakened at the central bank's official auction window on Monday, as the regulator failed again to meet the increasing demand for dollars.

The CBN sold $400 million at 156.91 to the naira, well short of the $736.94 million demanded and at much more attractive levels for dollar buyers than at the interbank market where the local currency touched an all-time low of 167.40.

The regulator has been committed to supporting the naira, raising interest rates six times this year and selling dollars at bi-weekly auctions but without sustained success with the local currency falling more than 8 percent in under two months.

Traders said they expected the naira to firm in the coming days following the central bank announcements.

The CBN raised the cash reserve requirement of banks to 8 percent from 4 percent and reduced net open positions lenders can hold as reserves to 1 percent of shareholders funds, from 5 percent. These measures should reduce the quantity of naira in the system and free up dollar supply.

The central bank kept its 200 basis point corridor around the benchmark rate, so its recommended deposit rate is 10 percent and its lending rate is 14 percent.

"This certainly isn't a central bank that does things in half-measures. The changes announced this afternoon are huge — leaving little room for doubt in anyone's mind about the resolve to maintain price stability in Nigeria," said Razia Khan, head of Africa research at Standard Chartered.

The naira's decline steepened this month after the central bank broke its rule of only selling dollars at its bi-weekly auction within a 3 percent band around 150 naira to the dollar, a system designed to stabilize forex trading.

It has now sold dollars outside the weakest boundary of the agreed band at its last three auctions as the gulf between the official window and interbank market widens but traders said measures taken by MPC should tighten this gap.

By selling dollars at auction the CBN is eating into Nigeria's foreign reserves, which are built up through the sale of its crude oil.

Despite high oil prices and production, reserves stand at $31.4 billion, down from $35.4 billion a year ago.

But Sanusi said the state of reserves could not be blamed on the central bank because the oil reforms, which have been stuck in the national assembly for years were stopping the country receiving adequate revenues. He said by passing the Petroleum Industry Bill into law and removing fuel subsidies, an extra $10 billion would be accrued from the oil industry to the government.

The government said it would begin the removal of costly fuel subsidies starting next year.

Sanusi said the MPC had been freed-up by the end of the banking crisis because there was now a lower risk of harming lenders through monetary tightening, while the ongoing expansive fiscal spending plans also made the decision to sharply tighten in monetary policy easier.

A two-year old banking crisis was brought to a resolution last week week when the last of nine banks rescued in 2009 agreed a recapitalization deals.

The government announced in a four-year fiscal plan this week that it would end fuel subsidies starting next year and overall spending would increase in the 2012 budget, which is likely to push upward pressure on inflation.

Consumer inflation has been brought below the CBN's notional single-digit target for the last two-months but Sanusi said future upward pressures were on the near horizon.