18.75% MPR:  Manufacturers Lament as Savers Revel 5.24% Interest on Savings

Kayode Tokede

As manufacturers and small businesses bemoan rising interest rates, bank depositors are celebrating as the average interest rate on savings increased to 5.24 per cent in July 2023 following the hike in the Monetary Policy Rate (MPR) to 18.75 per cent by the 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 comes on the backdrop of a double-digit inflation rate.

In its Money Market Indicator data, the CBN revealed that interest on savings rose to 5.24 per cent in July, the month the MPC voted to increase MPR to 18.75 per cent.

Interest on savings stood at 5.18 per cent in June when MPR was at 18.5 per cent and 4.59 per cent in May when the MPR was 18 per cent.

The interest saving rate in January was at 4.29 per 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, the 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.

The date revealed 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.

In addition, average prime lending rate moved to 113.98 per cent in July 2023 from 13.85 per cent in June 2023.

Meanwhile, finance analysts believe the gap between the CBN’s average lending rate and the prime lending calls for concern, stressing that the spread between the rates should not be more than 10 per cent.

The Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, “Businesses need a lot of credit facilities to survive, but in an environment where the lending rate is astronomical, many enterprises, especially small and medium-scale, might find it extremely difficult to survive as their products will remain uncompetitive and the cost of production and the sale prices to consumers will remain high.”

He added that, “A hike in interest rate is often considered a manufacturers’ nightmare as it stifles productivity and expansion. A hike in interest rate slows down productivity, as manufacturers struggle to keep machinery in operations and pay salaries. Those who look forward to borrowing for expansion and production will have to shelve such ideas in the face of the high cost of accessing funds.”

In addressing these challenges, he suggested that development banks must be encouraged to lend at a single digit with stringent tracking, adding that CBN’s policy on tackling inflation rate not working.

According to him, “Both CBN and FG are not serious in coordinating their policies to bring down inflation. While the CBN is pursuing a contractionary monetary policy to tackle inflation, the FG is pursuing an expansional fiscal policy, leading to mismatch in the two policies.

“While CBN is pretending they are undertaking contractionary monetary policy, they are advancing illegal credit to FG through Ways and Means which is the means cause of inflation to the current level.”

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.