The Central Bank of Nigeria,CBN, has ordered banks in Nigeria to pay savings deposit accounts an interest rate of at least 4.2%, an increase from the 1.4% previously received.
In a letter addressed to all banks and titled, “Review of Interest Rate on Savings Deposits”, which was dated August 15, 2022 and signed by CBN Director, Banking Supervision Department, Haruna Mustafa, stated that it became necessary to review the rate back to 30 percent of MPR following the return of normalcy in the economy and considering the prevailing macroeconomic conditions.
According to the letter the new interest rate on savings accounts 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.”
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.”
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.
The apex bank noted that Nigeria has returned to economic normalcy, saying “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.”
Increased interest rate for savings accounts 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.
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