The Central Bank of Nigeria a few weeks back concluded its monetary policy committee meeting increasing the rate at which the Central Bank lends money to commercial bank from 12% to 14%. That was the highest jump in history.
The effect of such price increases is that the lending rates equally move in the same direction ensuring that what lenders pay for their loans rises in tandem. Commercial lending rates have been in the northwards of 24% since the we started experiencing the drop in the price of crude oil.
With the MPR now increased, analysts also expect to see a movement in the rate at which the government pays when it borrows money from the public. It does this via Treasury Bills or Bond Issuance.
One rate which hardly follows policy rate changes are your savings deposit rates. As the chart below depicts, despite an increase in MPR and mending rates, deposit rates have remain stubbornly low. This is even more shocking when you consider that the inflation rate is currently at about 16.5%.
What this means?
This basically means that idle funds kept in your bank account at an interest rate of about 3-3.5% is a waste of your money. You are probably better off depositing that money in fixed deposits. From the chart above, it is obvious that the treasury bills rates, which is the grey line is now much higher than the fixed deposits and savings deposit rates.
Nairametrics mostly recommends that idle funds be invested in treasury bills as they are safer and attract high yields. Instead of saving at a rate of 3-5% per annum and getting a negative real savings rate of -13% (savings deposit rates of 3.5% less inflation of 16.5%). The latest Treasury bills data shows a yield of about 19% for 182 days treasury bills.