Despite boost in rates, savings volume unlikely to rise – Analysts

The recent hike in the savings rate by the Central Bank of Nigeria (CBN) is not likely to spur savings in the country given the current high inflation rate and other prevailing economic factors, analysts have said.

Indeed, savers, holders of fixed-income instruments as well as retirees face huge losses in purchasing power, given the nation’s high inflation-rate environment, they stressed.

The CBN early this month raised the rate on savings accounts to 30 per cent of the Monetary Policy Rate (MPR), from 10%. With an MPR of 14%, that translated to a 4.2% rate per annum on such savings accounts.

To qualify for the interest rate payment, a savings account holder cannot withdraw from it more than three times in a month. Any month that the saver withdraws more than three times from it, he would not be paid savings interest rate for that month.

At the current savings rate, a saver who meets the condition of not withdrawing more than three times in a month from the account will have a negative real savings rate of about 15.44%. That is how much he would have lost of the balance on his statement at the end of the year.

“With inflation rate at about 20%, unending devaluation of the naira, continuous increase in the pump price of fuel and burgeoning prices of electricity and other energy sources, ‘poor’ people do not have sufficient disposable income to engage in naira savings,” Dr Eze A. Eze, a Senior Lecturer in Economics at the Nnamdi Azikiwe University, Awka, told Daily Trust. 

The negative real savings rate is nothing but destruction of stored value and further pauperisation of the poor, unsophisticated and hapless depositors, he said.

“It’s been a mixed feeling for banks, as the higher interest rate becomes a double-edged sword for most of the players, with Nigerian lenders having varying abilities to ride the tide,’’ said Abiola Rasaq, former economist of United Bank for Africa Plc (UBA).

“On one hand, banks are faced with rising funding costs, especially on local and foreign currency wholesale funds from multilateral lenders, international banks, pension funds and asset managers. And on the other hand, yields on assets are trending higher, reflecting the higher interest rate environment,” he said.