CBN raises Fixed Deposit Facility rate to control liquidity

The Central Bank of Nigeria has raised the interest rate on the Fixed Deposit Facility (SDF) as part of its ongoing efforts to control liquidity in the banking sector.

This becomes important after the money supply (CIC) hit an all-time high of N4.04 trillion in June 2024.

Money and Credit data released by the CBN also showed that currency outside banks settled at N3.79 trillion, also the highest in history and 93.6 percent of the currency in circulation.

However, following the approval of significant changes to the interest rate policy at the 296th Monetary Policy Committee (MPC) meeting, a circular signed by Omolara Duke, Director of the Financial Markets Department outlining these decisions was released on Monday, 26 August 2024.

“The Asymmetric Corridor Monetary Policy Rate (MPR) was adjusted by the CBN from +100/-300 basis points (bps) to +500/-100 bps. With this major change, the central bank hopes to discourage banks from hoarding excess cash and encourage more lending. The interest rate on the Fixed Lending Facility (SLF), which banks use to borrow short-term funds from the CBN, has been raised to 31.75%.

“The SDF interest rate applicable to bank deposits at the CBN has been increased to 25.75%,” the circular said.

The circular also states that:

“Commercial Banks and Commerce Banks will receive 25.75% on deposits up to ₦3.00 billion, while deposits exceeding this amount will be subject to a lower interest rate of 19.00%.

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“Payment Services Bank will receive 25.75% on deposits up to ₦1.50 billion, with amounts above this threshold receiving 19.00%.

“The new rates are effective from now, and all authorized dealers are expected to comply with the latest guidelines,” the circular read.

By: Babajide Okeowo

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