Central Bank Pivots to Savings With Interest Rate at 16.5%

Central Bank Pivots to Savings With Interest Rate at 16.5%

By Bashir Olanrewaju

For the second straight session the Central Bank of Nigeria’s Monetary Policy Committee raised its benchmark interest rate by one percentage point to 16.5 per as the monetary authorities retreated from its anti-savings stance of not long ago in the face of a continuing inflation surge.

It was also the third consecutive occasion the MPC was increasing borrowing costs, having started slowly in July with a 50-basis points increase, with CBN Governor Godwin Emefiele saying the strong tightening stance was beginning to yield results in terms of putting the brakes on  accelerating inflation. However, the MPC meeting left unchanged other key parameters such as the cash reserve ratio for banks left at 32.5 percent and the liquidity ratio at 30 percent.

Nigeria’s annual inflation reached 21.09 percent in October, the latest stop in an an eight-month steady climb, as a combination of higher costs for food, fuel and a naira depreciating due to rising import costs took their toll.

With very little tools left to pursue its prime responsibility of maintaining price stability, the central bank has resorted to pursuing a higher interest-rate regime to tame what it deems the excess liquidity in the system and regain control over the money in circulation, and by extension monetary policy.  That has also seen it unwind its previous stance a year ago that discouraged higher returns on savings on the grounds that Nigerians were putting away too much money when the economy needed spending.

Closely linked to Emefiele’s plan to check the amount of cash in circulation is the decision the redesign the naira’s highest denomination notes, with holders of old notes given between December 15 and the end of January 2023 to exchange them.