CBN directs banks to minimum of 3.6 per cent on savings

By The Rainbow

The Central Bank of Nigeria (CBN) has directed banks to pay a minimum of 30 per cent of Monetary Policy Rate (MPR) as interest on savings accounts.

At the current rate, the banks are expected to pay not less than 3.6 per cent. Some banks presently pay just about 1 per cent on savings accounts.

The directive is contained in the Financial System Stability report issued by the CBN as part of efforts to encourage savings culture.

In the  report signed by its Deputy Governor,   Dr. Kingsley Moghalu, CBN provided the background that justifies the new directive.

The CBN deputy governor said the  benchmark rate had been kept at 12 per cent since October 2012.

Moghalu said interest rates were relatively stable in the money market during the first half of last year, though lower than their levels in the second half of 2012.

He said the report showed average interbank call and open buyback (OBB) rates stood at 11.55 and 11.36 per cent during the review period, down from 13.44 and 12.87 per cent in the second half of 2012.

The Deputy Governor said average term deposit rate also fell to 6.87 per cent, from 7.51 per cent in the second half of 2012. Also, prime and maximum lending rates fell by 0.43 a n d 0 . 3 4 p e r c e n t a g e p o i n t s to 16.58 and 24.18 per cent in the review period.

Therefore, the spread between the maximum lending and the average term deposit rates stood at 17.31 percentage points, a 0.3 percentage point higher than the level in the second half of 2012.

He said with the inflation rate at 8.4 per cent in June 2013, most deposit rates were negative in real terms, while lending and most money market rates were positive in real terms. The negative real rate of return on deposits acts as a disincentive to savings.

'Thus, as part of the ongoing efforts to improve the savings culture, the CBN revised the Guide to Bank Charges requiring banks to pay a minimum of 30 per cent of MPR on savings accounts, among others,' he said.

He explained that inflationary pressures moderated in the first half of 2013, partly in response to the tight monetary policy stance of the CBN and the stability in the supply of petroleum products.

'Year-on-year headline inflation decelerated to 8.4 per cent in June 2013, from 12 per cent in December 2012. Also, core and food inflation declined to 5.5 and 9.6 per cent, from their respective rates of 13.7 and 10.2 per cent in December 2012,' he said while listing key risks to inflation in the short to medium term as possible accelerated fiscal releases in the latter part of the year and the upward review of electricity tariffs.

He said the growth in money supply was sluggish in the first half of last year. 'Broad money supply (M2), grew by 0.7 per cent to N15.5 trillion, compared with the growth of 14.8 per cent at the end of the preceding period. On an annualised basis, M2 grew by 1.4 per cent, compared with the indicative benchmark of 16.4 per cent for last fiscal year.

'The growth in money supply reflected the 4.7 per cent rise in net domestic credit of the banking system, demand deposits (DD) declined by 11.2 and 2.3 per cent,' he said.