Following a 250 basis points increase in interest rate to 14%, the Central Bank of Nigeria (CBN) has now increased the minimum interest rate payable on savings deposits from 0.15% to 4.2%.
The apex bank stated this in a letter titled ‘Review of interest rate on savings deposits’ and signed by Haruna Mustafa, director of banking supervision.
According to the letter, effective August 1, 2022 minimum interest rate on local currency savings deposits should be reviewed upward to 30% of the Monetary Policy Rate.
The CBN lowered the interest rate on savings deposits from 30% to 10% in September 2020 to help financial services providers manage the impact of COVID-19 better. However, the persistent increase in the inflation rate to 19.64% in the month of July has compelled the apex bank to start making adjustments to its monetary policy.
In the last two months, CBN has raised interest rate by 250 basis points to 14% in an effort to curtail the inflation rate, increased interest on intervention loans from 5% to 9% and now revised upward interest on savings deposits.
The central bank attributed the adjustments in interest rate to economic recovery post-Covid. However, all fingers point to consumer prices struggle.
“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,” the CBN said in the letter.
Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said: “It is a good thing the CBN has done so because the gap between savings and lending rates is so wide and discourages savings.”
He was concerned that each time the MPC increases the MPR, commercial banks tend to increase their lending rates without a corresponding increase in savings rate.
“With a savings rate floor of 4.2 percent, I expect to see increased volume of savings and, by extension, credit to the economy,” he said.
