CBN raises savings rate to boost deposits

The Central Bank of Nigeria (CBN) has reviewed upwards the minimum interest rate payable to savings deposits from 0.15 percent to 4.2 percent.

This was disclosed in a letter to all banks, titled ‘Review of interest rate on savings deposits’, dated August 15, 2022 and signed by Haruna Mustafa, director of banking supervision.

The letter said effective August 1, 2022, the negotiable minimum interest rate on local currency savings deposits should be 30 percent of the Monetary Policy Rate (MPR).

The Monetary Policy Committee (MPC) of the CBN has raised the MPR, its benchmark interest rate, this year by 250 basis points to 14 percent to curtail rising inflation in the country.

Nigeria’s headline inflation surged to 19.64 percent in July 2022 on a year-on-year basis, the highest in 16 years and 10 months, according to data from the National Bureau of Statistics.

In September 2020, the CBN reduced the minimum interest rate payable on local currency savings deposits from 30 percent to 10 percent of MPR, as part of efforts to ameliorate the impact of COVID-19 pandemic.

This, according to the banking sector regulator, was aimed at stimulating growth in the larger economy showing 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,” 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.”

Read also: CBN raises savings rate to 4.2%

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, adding that the CBN should be on the lookout for commercial banks that may increase bank charges in a bid to recoup whatever is paid by way of additional increase in savings deposits rates.

As of July 22, 2022, eight banks were offering savings interest rates at 1.40 percent. The banks are Access Bank, Citibank, Ecobank, Globus, Polaris, Stanbic IBTC, Sterling Bank, and Zenith Bank, data from the CBN revealed.

Other banks with various interest rates on deposits include FCMB, 1.15 percent; Fidelity, 1.3 percent; GTBank, 1.29 percent; Heritage, 4.20 percent; Keystone, 1.30 percent; Providus, 0.75 percent; Standard Chartered, 2.20 percent; SunTrust, 4.10 percent; UBA,1.15 percent; Union Bank, 0.88 percent; Unity Bank, 1.90 percent, and Wema Bank, 1.30 percent.

“It is important for policy makers to review Nigeria’s interest rate policy to ensure that those who save in Nigerian naira do not lose purchasing power,” Bode Agusto, founder of Agusto & Co, said.

This, he said, would reverse the erosion of the value of pension assets and reduce speculative demand for hard currencies. If interest rates are uncompetitive, demand for government securities wanes and savers will seek solace in hard currencies, putting pressure on exchange rates, he said.