•As deposits soar 400%

By Elizabeth Adegbesan

Banks borrowing from the Central Bank of Nigeria’s, CBN, Standing Lending facility (SLF) increased by 117.2 percent month-on-month, MoM, to N7.82 trillion in September 2024 from N3.6 trillion in August 2024.

Breakdown of the CBN’s Financial Data for the review period also showed that banks’ deposits in the CBN’s Standing Deposit Facility, SDF,  rose sharply by 400 percent MoM to N3.97 trillion in September 2024 from N790.87 billion in August 2024.

Vanguard learnt that the sharp rise in the SDF followed the increase in interest rate the rates which meant more earnings for the banks’ deposits in the SDF.

CBN increased the rate in a directive issued on August 26, 2024, following the Monetary Policy Committee (MPC) meeting 296th, where key adjustments to interest rates were approved as part of its ongoing efforts to tame inflation by managing excess liquidity in the financial system.

The regulator increased the SDF rate to 25.75 percent and SLF rate to 31.75 percent.

The circular also specified that commercial and merchant banks would receive 25.75 percent on deposits up to N3 billion, while deposits exceeding this amount would attract a lower rate of 19 percent. Payment Service Banks, according to the circular, would receive 25.75 percent on deposits up to N1.50 billion, with amounts above this threshold earning 19 percent.

The upswings in rates is expected to continue as the apex bank’s MPC further hiked the Monetary Policy Rate, MPR, the benchmark interest rate, to 27.25 percent.

But analysts are of the view that the rate hike might strain businesses in the real sector, intensify the challenges posed by rising interest expenses, currency volatility, and high energy costs.

Analysts at CowryAssets Management Plc said: “Our view on the September rate hike to 27.25 percent was somewhat unexpected, given two consecutive months of declining inflation.

“However, the decision remains prudent, as inflationary pressures persist despite the recent disinflation trend. 

“The CBN’s hawkish stance highlights its commitment to containing inflation, particularly as core inflation continues to rise. 

“While the 50bps increase reinforces monetary tightening, it may add strain to businesses in the real sector, intensifying the challenges posed by rising interest expenses, currency volatility, and high energy costs. 

“Looking ahead, Cowry Research anticipates a potential pause in the rate hike cycle at the next committee meeting in November. 

“This could provide a necessary breather to assess the cumulative effects of prior hikes and to balance the goals of curbing inflation with fostering economic growth.”