BANKING: The Central Bank of Nigeria (CBN) has increased the interest in savings account by more than 300% of the existing rate in Nigerian banks in the face of the country`s staggering inflation, which has risen at the highest rate for over 17years.
What We Know
The increase in the interest payable by banks is as a result of a recent order by the Central Bank of Nigeria directing Nigerian banks to increase the minimum interest rate payable on savings deposits from 10 percent to 30 percent of the Monetary Policy Rate (MPR).
By implication, interest rate has now moved up from 1.4 percent previously to 4.2 percent, which represents more than 300 percent increase, and thereby generating more returns on savings deposit for bank customers.
Clariform reminds our readers that MPR is the baseline interest rate in any economy, from which every other interest rate used within that economy is generated. When a country`s MPR is set, then other interest rates revolves around it.
The direction from the apex bank was made in a circular signed by the Director in charge of the CBN`s Banking Supervision Department – Haruna B. Mustafa. The circular, which is available to Clariform was dated August 15, 2022.
Clariform reports that currently, the MPR in Nigeria is 14 percent, having been increased in July from the previous 13 percent. The CBN had explained that the reason for the increase is to curtail the rising inflation in the country.
Nigeria`s inflation rate currently stands at 19.64 percent. That is going by the official report in July. This is the highest it has been for the past 17 years in the country.
According to the CBN circular the new interest rate regime on savings deposits already became effective on August 1, 2022.
Notable Quote
The CBD Director, Mustafa noted the following:
“It will be recalled that as part of the efforts to ameliorate the impact of the COVID 19 pandemic, the Central Bank of Nigeria reduced the minimum interest rates payable on local currency savings deposits from 30% to 10% of the monetary policy rate (MPR),” the circular reads.
“This was aimed at stimulating growth in the larger economy following the economic slowdown occasioned by the pandemic.”
“However, following the return to full normalcy and considering the prevailing macroeconomic conditions, it has become necessary to effect an upward adjustment of the interest rate payable on local currency savings deposits.
“Accordingly, effective August 1, 2022, the negotiable minimum interest rate on local currency savings deposits shall be 30% of MPR. This supersedes our letter dated BSD/DIR/GEN/LAB/13/052 on the subject. September 1, 2020.”
Takeaway
Clariform reports that this change of the interest rate policy is a continuation of the monetary policy by the Central Bank of Nigeria is aimed at arresting the country`s inflation rate driven so high largely by food inflation.
The increase in interest rate could be seen as a measure to encourage savings, in other to control the rate of cash in circulation, and by implication also reduce the rate of inflation.
In addition, it is noteworthy that the increase in interest also by implication means that bank will consequential increase their payout on savings accounts and other savings focused financial products offered by the banks and financial institutions.
This in turn also means that the bank customers, especially those operating local currency savings in the country would enjoy more interest on their savings and return on their investment into savings focused financial products from the banks and financial institutions.
