The Central Bank of Nigeria (CBN) has carried out an upward review on interest rates paid on savings accounts, directing banks to implement at least 4.2% interest payment on depositors’ funds.
The 4.2% rate represents 30% of the Monetary Policy Rate (MPR) and a significant increase from the previous 0.15%.
The directive was contained in a circular shared by the CBN, dated August 15, 2022, and was signed by Haruna B. Mustafa, Director of Banking Supervision. The directive which was titled “Review of Interest Rate on Savings Deposits,” said the implementation should take effect from August 1.
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“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). This was aimed at stimulating growth in the larger economy following the economic-slowdown occasioned by the Pandemic,” the circular said.
MPR is the rate at which the CBN lends money to banks and a benchmark rate for lending in the financial industry. Savings interest rates are the mounts banks pay customers for saving their money with them.
Interest rates on savings deposits were kept at the barest minimum due to economic headwinds affecting the financial service sector. In September 2020, the CBN reduced the minimum interest rate payable on savings deposits from 30% to 10% of MPR that was pegged at 12.5% then. The move was to curtail economic strains emanating from covid-19.
The CBN said the upward review has become necessary as things are beginning to return to normal.
“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,” the CBN said.
Nigeria’s headline inflation rate rose 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 (NBS).
Nigerian depositors have decried the number of arbitrary charges on their savings accounts, which has resulted in apathy toward banking as monies kept with the banks depreciate over time.
The 4.2% increase in interest rate is hoped to revitalize depositors’ willingness to deposit their monies in the banks.