Respite has come the way of bank depositors as interest rate on savings increased to 5.24 per cent in July 2023 following the hike in Monetary Policy Rate (MPR) to 18.75 per cent by Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).
The MPR is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.
The reported 5.24 per cent interest rate on savings is the highest since 2006 and it coming on the backdrop of double-digit inflation rate.
The apex bank in its money market indicator data revealed that interest on savings rises to 5.24 per cent in July, a month MPC member of the CBN voted to increase MPR in the banking sector to 18.75 per cent.
Interest on savings was at 5.18 per cent in June when MPR was at 18.5 per cent and 4.59 per cent in May when MPR in the banking sector was at 18per cent.
The interest saving irate in January was at 4.29per cent and MPR at 17.5 per cent.
The money market indicator revealed that interest on one-month deposit dropped to 7.11 per cent from 7.15 per cent in June 2023, while interest on three-month deposit also dropped to 7.62 per cent in July 2023 from 7.68 per cent in June 2023.
The data revealed that interest on 12-month deposit dropped to 7.81 per cent in July 2023, highest so far in 2023. It opened January 2023 at 7.79 per cent and reach 8.23 per cent in May 2023 when MPR was increased to 18.5 per cent.
Further findings from the data showed that average maximum lending rate increased dropped to 27.38 per cent in July 2023 from 28.94 per cent reported by CBN in June 2023.
Maximum lending rate refers to the rate charged by banks for lending to customers with low credit rating.
The MPC’s hike in MPR decision was the first monetary policy decision made by the committee since President Bola Tinubu administration took office on May 29, 2023.
It was the first MPC meeting since the suspension of Godwin Emefiele as CBN governor.
The acting governor of the apex bank, Folashodun Shonubi stated that the moderate rate hike is to sustain efforts at anchoring inflation expectations, narrow the negative real interest rate gap and improve investor confidence.
He also said members agreed unanimously that the previous rate hikes have been effective in moderating the rate of price increases.
Shonubi in his communique after the meeting said, “Considering the option to hold, the Committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth. Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price increases.
“The option to continue to hike the policy rate, albeit moderately, also presented a strong alternative. This is premised on the expected liquidity injections into the economy from the recent policy developments and the likely impact on inflation.”
He noted that the committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which would ultimately lead to the recovery of output growth.
“The balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence,” he said.