The Central Bank of Nigeria (CBN) has ordered banks in the country to pay financial savings deposit money owed an interest rate of at least 4.2%, an increase from the 1.4% that was formerly in existence.
The order was contained in a memo sighted Nairametrics, dated August 15, 2022, titled “Review Of Interest Rate On Savings Deposits”” and signed Haruna B. Mustafa, Director Of Banking Supervision.
Consistent with the apex financial institution, the hike in financial savings interest fees, that is effective from August 1, became necessary following the return to normalcy of after considering the contemporary macroeconomic circumstance.
What does the new CBN order mean?
The circular reads “it would be recalled that as a part of the efforts to ameliorate the impact of the COVID-19 pandemic, the Central Bank of Nigeria reduced the minimum interest charges payable on local foreign money 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 apex bank stated that Nigeria is back to monetary normalcy, the bank said“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.
What does this mean?
The monetary policy rate (MPR) is the rate at which the CBN lends money to banks. It’s a benchmark price for lending in the economic offerings region. Financial savings deposit costs are default costs banks pay customers for preserving their money within the banks. MPR is presently pegged at 14% by using the CBN and 30% of that is 4.2%.
- What you need to understand
The monetary policy rate (MPR) is an economic system’s base interest price. It serves as a benchmark for lending in the financial service sector.
The CBN recently improved the MPR from 13% to 14% as a way to combat inflation, which reached a 17-year high of 19.64% in July 2020.
Savings deposit rates are the interest rates that banks charge customers for keeping their money in their accounts. An increase in the interest rate on a savings deposit is typically expected to increase savings and serve as a form of contractionary monetary policy.
However, because inflation has surpassed all of these rates, any money saved loses purchasing power over time.