The Central Bank of Nigeria, CBN, has indicated that banks would increase interest rates on customers’ deposits to between 10 percent and 30 percent of the Monetary Policy Rate, MPR.
Disclosing this during a virtual media briefing yesterday, the Director of Monetary Policy, Dr. Hassan Mahmoud, explained that the interest rate hikes were in line with the global trend.
The apex bank had raised the MPR to 15.5 percent at the end of its Monetary Policy Committee meeting on Tuesday.
Consequently, with the apex bank’s latest position banks are expected to move up the interest rate they pay customers on their deposits to about 20 percent, an unprecedented hike never seen in the banks.
Deposit rates have remained below five percent for demand and savings deposits while fix deposits attracted between 10 and 12 percent just before the new MPR.
On the effect of the rate hike, Mr. Mahoud said that CBN was optimistic that the desired result of arresting the rising inflation would be achieved.
Inflation rate for August 2022 was 20.52 percent, the highest in 17 years.
Mahoud stated: “Note that Central Banks have been raising rates across the globe because of the global inflation trend. But we didn’t raise rate just because others are raising rates. We raised rate because of the wide gap between the inflation rate and the interest rate.
“How does the rising inflation affect the economy? The volume of money was too high for the economy to absorb in terms of the flow of supply. Consequently, prices will go up because of the volume of money in the system.
“A lot of those funds standing idle. The banks are not lending the funds and as such impacting negatively on our Foreign Exchange market.
“It will also impact on the Foreign Exchange market and when the Naira depreciates, so also will increase the inflation rate. Besides, it will make our economy unattractive to foreign investors to bring in their money.”