By Biyi Adesuyi
This month, the Central Bank reviewed the interest on savings downward to 1.25percent per annum.
Unbelievable! Economics dictates that the interest on deposits must be higher than inflation rate which currently stands at 12.5%.
In a society where people are financially literate, the rigging of interest rate will ultimately result in decline in deposits. Consequently, funds available for credit provisions will also suffer reduction.
I still search for the rationale for the Governor of CBN to continue to bring down interest on deposits while the interest on loans is still in double digits.
In BFN 101, my Professor taught me that commercial banks lived on loan – deposit gap.
In other words, banks make profits through the difference between the interest they collect on loans and the interest they pay on deposits.
As the CBN governor continually widens the gap, one tends to conclude that Emefiele is just using his position to help his colleagues in the commercial banking sector.
He is more of a commercial banker.
Although Soludo never worked in any bank before his appointment as CBN Governor, he was a better Central Banker.
As interest rate can no longer compensate for inflation, with the external value of Naira falling persistently, there will be decrease in the propensity to save.
Nigeria witnesses disruptions in the real sector. The financial sector is also witnessing disruptions. How do we move forward from here?
Adebiyi Adesuyi is a development consultant and Managing Director of Wealthgate Advisors, Lagos.
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