CBN raises interest rates for deposits it gets from commercial banks to 26.5% from 19%

The Central Bank of Nigeria (CBN) has announced a significant adjustment to the remuneration structure for deposits placed with it by commercial banks, raising the interest rate on the Standing Deposit Facility (SDF) to 26.5%.

This represents a sharp increase from the previous 19% applied to large deposits exceeding N3 billion.

The policy shift, communicated via a circular dated November 29, 2024, comes as part of the decisions taken during the 298th meeting of the Monetary Policy Committee (MPC).

At the meeting, the MPC opted to retain the asymmetric corridor around the Monetary Policy Rate (MPR) at +500/-100 basis points, while also abolishing the second-tier structure of the SDF.

Previously, the SDF operated on a two-tier basis, with deposits of up to N3 billion remunerated at MPR minus 100 basis points, while amounts exceeding N3 billion were remunerated at a significantly lower rate of 19%.

This adjustment represents a 7.5 percentage point increase for deposits exceeding N3 billion, aligning them with the same remuneration rate as smaller deposits.

The adjustment highlights the CBN’s strategy to enhance liquidity management within the banking system while incentivizing banks to hold excess cash with the apex bank.

This policy adjustment is consistent with the MPC’s hawkish stance, which has seen the MPR remain elevated at 27.5%.

It complements recent decisions to maintain a high MPR, signaling the apex bank’s continued focus on curbing inflationary pressures.

The asymmetric corridor retained at +500/-100 basis points ensures that the cost of borrowing from the CBN remains significantly higher than the return on deposits, further discouraging speculative liquidity movements.

The removal of the second tier effectively makes the SDF more attractive for banks with surplus liquidity, as they now stand to earn higher returns on large deposits. This could lead to: