The interest rate in Nigeria (or in any other country, to be fair) can change in a matter of months. Countries across the globe have different policies, and their interest rate may differ from one country to another. We will tell you about the interest rates in Nigeria as at today.
What is interest rate?
It is important to establish what an interest rate is and what factors can influence interest rates. To begin with, the interest rate has nothing to do with “interests” as a state of wanting something, as some people may think. It is a term that is related to the field of Finance. Interest, in this case, is an amount of money that is regularly paid and at a particular rate. The amount usually in proportion of the amount deposited, lent or borrowed.
It may also be described as a rate that a lender charger, like a bank, for example, charges to borrow its money. It is the rate that a bank itself has to pay to the savers that keep the money in a bank’s account.
The interest rate is usually due withing a set period - a month, few months or a year. However, the rates that apply to other periods besides yearly (or as it is called the annual interest rate) are usually annualized.
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Note that the interest rate of the country may be influenced by different factors. They are:
✔ The currency of the sum that was lent or borrowed;
✔ The market;
✔ The directives that were applied to the central bank by the government;
✔ The default probability of the borrower.
The interest rate changes due to different reasons. One of the main reasons is the economy of the country. For example, banks may change the interest rate in order to improve the economic growth. The rates may also be changed in order to give the economy short-run boosts, like during the elections.
What is the interest rate in Nigeria today?
During the past ten years, the interest rate in Nigeria has changed several times. During the period from 2007 to 2017, the rate averaged 10.45 percent with the lowest at 6 percent in 2010. It was quite stable in 2012-2015 with the interest rate of 12 percent.
As at 2017, the interest rate has been a bit stable- the Central Bank of Nigeria has been holding its benchmark at 14 percent since September. What is the forecast for the rest of the year? The interest rate is expected to be at 14 percent. Some experts say that it may decrease to the point of 13 percent at the end of the year. As for 2018, the interest rate may decrease even further, to the point of 12 percent. Even though there may be some economical factors that may change the interest rate, for now, it looks like it will remain stable.
The reason for such stability is the decision made by the Monetary Policy Committee. In May, the Monetary Policy Committee decided to leave the policy rate the same and meet the market expectations. Therefore the current interest rate in Nigeria remains at 14 percent while the asymmetric corridor is at minus 500 and plus 200 basis points.
The reason of the stable interest rate
But why did the Monetary Policy Committee of the Central Bank of Nigeria decide to leave the interest rate at 14 percent? The reason is that the position of the CBN is quite challenging. It is not in their best interests (got that, right?) to make the interest rate higher because there is no need to lower the economy even though it may lead to slower inflation.
In the case of lowering the rate, the economic activity will improve and that will lead to more investment and consumption. However, it can lead to inflationary pressures which will weaken the Naira. The Bank decided to leave the inflation at this point even though it is above their target range of 6.0%-9.0%.
As we can see, the interest rate in Nigerian banks remains at 14 percent. The Central Bank of Nigeria is putting in a lot of effort to keep the economy stable. We’ll see the result in the future!
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