As of the end of December 2022, the maximum lending rate in the banking sector reached 29.13 percent, while savings deposit rates stood at 4.13 percent. These figures, obtained from the Central Bank of Nigeria (CBN), were revealed in a report on money market indicators released on Monday. The report also indicated that the prime lending rate was 13.85 percent, and the inter-bank call rate was 12 percent. Additionally, the treasury bill rate was 4.35 percent, with one-month deposit rates at 8.15 percent, three-month deposit rates at 3.79 percent, six-month deposit rates at 8.68 percent, and twelve-month deposit rates at 8.22 percent. The Monetary Policy Rate during this period was 16.5 percent.
The National Institute of Credit Administration (NICA) highlighted the necessity of supporting businesses with single-digit loans, as high interest rates are hindering economic growth. According to their report on the growth, development, and sustainability of the micro, small, and medium-sized enterprise (MSME) sector in Nigeria, the relationship between the Monetary Policy Rate and interest rates charged on loans is significant. NICA stated, “The higher the Monetary Policy Rate, the higher the interest rate charged on loans and lines of credit offered to MSMEs in the country. High interest rates are an albatross to any MSME.” The organization noted that many MSMEs face various economic challenges that impact their profitability, emphasizing the importance of providing easier access to single-digit loans to alleviate these issues.
NICA further recommended that the CBN, in collaboration with developmental banks, should establish more sector-specific funds that MSMEs can access at single-digit interest rates without excessive difficulties or stringent conditions. Additionally, the federal government can stimulate growth and development in the MSME sector by implementing targeted tax incentive policies. While this approach may initially reduce government revenue, especially during a period of declining income, the long-term benefits to the economy are significant. The federal government can offer tax incentives in specific areas to support this initiative.
The report explained that monetary policy encompasses the actions taken by the Central Bank to regulate the value, supply, and cost of money in the economy, aiming to achieve the government’s macroeconomic objectives. While the objectives of monetary policy may differ from one country to another, two main perspectives exist. The first perspective advocates for monetary policy to achieve price stability, while the second seeks to attain both price stability and other macroeconomic goals. The CBN, like other central banks in developing nations, aims to achieve its monetary policy goals through the management of the money supply. The report noted that the policy interest rate influences the levels of other interest rates in the economy, as it represents the cost at which banks obtain money from the CBN. Consequently, these banks offer financial products to MSMEs at interest rates typically based on the policy rate.
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