Banks to earn 25.75% on CBN Deposits, Standing Lending Facility now 31.75%

The Central Bank of Nigeria (CBN) on Monday, made significant adjustments to its monetary policy to manage liquidity and address inflationary pressures.

Following the 296th Monetary Policy Committee (MPC) meeting, the CBN increased the rates for the Standing Deposit Facility (SDF) to 25.75% and the Standing Lending Facility (SLF) to 31.75%.

In a circular signed by its Director Financial Market Department, Dr. Omolara Duke, also said that commercial and merchant banks would earn a 19% interest rate on deposits above N3 billion in its Standing Deposit Facility (SDF).

There is also 19% interest on deposits above N1.5 billion for Payment Service Bank (PSB).

The CBN has also lifted the suspension of the standing deposit facility for banks in the country and fixed interest on their deposits between 19 and 25.75 percent.

At its last meeting in July, the MPC had raised the monetary policy rate by 50 basis points to 26.75 per cent from 26.25 per cent and adjusted the asymmetric corridor around the MPR to +500/-100 from +100/- 300 basis points, whilst leaving other parameters unchanged.

Highlighting on the reason behind the SLF rate, the apex bank said, “The Monetary Policy Committee (MPC) adjusted the upper corridor of the standing facilities to 5.00% from 1.00% around the MPR, at its 296th meeting.

Consequently, the suspension of the Standing Lending Facility (SLF) is hereby lifted and Authorised Dealers should send their request for SLF through the Scripless Securities Settlement System (S4) within the operating hours of 5.00pm to 6.30pm.

“To this end, Authorised Dealers are permitted to access the SLF at 31.75%; Permitted to access Intraday Lending Facility (ILF) to avoid system gridlock at no cost if repaid the same day;

The 5.00% penalty (as stated in the S4 business rules) is retained, for participants that do not settle their ILF, which the system will convert to SLF at 36.75%;

Collateral execution (the rediscounting of instruments pledged by participants at the penal rate by CBN) is reintroduced as stipulated in the approved repo guidelines. The circular takes immediate effect.”

Experts, however stated while reacting to the development, that the CBN’s latest adjustments are expected to have broad implications for the banking sector.

They opined that by raising both SLF and SDF rates, the central bank aims to curb excess liquidity, which is often a precursor to inflation.

“The reduction in interest rates for excess deposits is also intended to push banks toward more active lending rather than merely holding funds at the CBN.

“The changes are likely to impact the cost of funds for banks, influencing the interest rates offered to customers for both loans and deposits.

“While tighter liquidity conditions may lead to higher lending rates and potentially slower credit growth in the short term, the move could help stabilize inflation over time.

“The increase in the SLF rate means that banks looking to borrow money from the central bank to cover short-term liquidity positions will now face higher interest costs,” they said.