Banks’ borrowing from the Central Bank of Nigeria (CBN) through the Standing Lending Facility (SLF) surged by 117.2 percent month-on-month (MoM), reaching N7.82 trillion in September 2024, up from N3.6 trillion in August 2024.
At the same time, deposits in the CBN’s Standing Deposit Facility (SDF) skyrocketed by 400 percent, increasing from N790.87 billion in August to N3.97 trillion in September 2024.
The sharp rise in SDF deposits is attributed to the CBN’s decision to raise interest rates following the Monetary Policy Committee (MPC) meeting held in late August.
This increase made it more profitable for banks to deposit funds into the SDF.
Specifically, the CBN hiked the SDF rate to 25.75 percent and the SLF rate to 31.75 percent. Banks and financial institutions now earn 25.75 percent on deposits up to N3 billion, while amounts exceeding this cap receive a reduced rate of 19 percent.
The MPC also raised the Monetary Policy Rate (MPR) to 27.25 percent in an effort to curb inflation, but analysts warn this could place additional strain on businesses in the real sector due to rising interest expenses, currency volatility, and high energy costs.
CowryAssets Management Plc analysts suggest that despite recent disinflation, the rate hikes aim to contain persistent inflationary pressures. They predict a potential pause in the rate hikes at the next MPC meeting in November to allow time to assess the overall impact on the economy.
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