The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has increased interest rate on savings account, as the apex bank said Nigeria’s economy has returned to normalcy.
In a circular dated August 15, the financial regulator directed commercial banks to review their interest rate to 4.2%, up from the 1.4% that the central bank had pegged the rate in 2020.
The CBN said the minimum interest rate on local currency savings deposits will be 30% of Monetary Policy Rate (MPR), which is currently 14%. Recall that the MPR was increased in July from 13%.
According to the circular signed by CBN Director Of Banking Supervision, Haruna Mustafa, the new interest rate on savings account became effective at the start of this month, August 1, 2022.
“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 CBN circular reads.
It added, “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 explained further that “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.”
What you need to know
The CBN increased the savings interest rate to cut circulation of currency in the Nigerian economy, in a bid to tame inflation, which rose to 17 years high of 19.64% in July, from 18.6% in June.
Prior to the interest rate rising to 4.2%, its level of 1.4% had discourage people from saving, as it wasn’t lucrative and makes savers pay bank for saving. However, the new rate will see money kept in banks grow in value.
Increased interest rate for savings account will encourage people to save more, and spend less to reap the benefit of the improved interest rate, therefore, affecting demands for goods and services.
And in turn, it will compel companies to reduce the cost of goods in order to lure buyers – thereby reducing cost of living, considering inflation rate will drop, as MPR of 14% has made borrowing too costly for them to raise funds needed to produce and grow their business – leaving companies to depend on customers for funds.