The Central Bank of Nigeria (CBN) has announced an adjustment to the remuneration structure for deposits placed with it by commercial banks, raising the interest rate on the Standing Deposit Facility (SDF) to 26.5%.
This represents a sharp increase from the previous 19% applied to large deposits exceeding N3 billion.
The policy shift, which the apex bank announced via a circular dated November 29, 2024, comes as part of the decisions taken during the 298th meeting of the Monetary Policy Committee (MPC).
At the meeting, the MPC opted to retain the asymmetric corridor around the Monetary Policy Rate (MPR) at +500/-100 basis points, while also abolishing the second-tier structure of the SDF.
The circular partly read: “At the 298th meeting of the Monetary Policy Committee (MPC), the Committee retained the Asymmetric Corridor at +500/-100 around the MPR and removed the 2″ tier of the Standing Deposit Facility (SDF) of 19% on deposits above 3billion.
“The SDF will now be remunerated on a single tier basis which is currently the Monetary Policy Rate (MPR) minus 100 basis points. Consequently, all SDF will be remunerated at the prevailing SDF rate of 26.50%.”
According to the CBN, the circular supersedes the earlier circular on the Asymmetric Corridor it issued on August 26, 2024.
Previously, the SDF operated on a two-tier basis, with deposits of up to N3 billion remunerated at MPR minus 100 basis points, while amounts exceeding N3 billion were remunerated at a significantly lower rate of 19%.
However, under the new framework, the CBN has streamlined the system by implementing a single-tier rate for all deposits.
The new rate is pegged at MPR minus 100 basis points, resulting in an effective rate of 26.5%, as the current MPR stands at 27.5%.
If the MPR increases further than 27.5% then the policy suggest the new rate will be MPR minus 1%.
This adjustment represents a 7.5 percentage point increase for deposits exceeding N3 billion, aligning them with the same remuneration rate as smaller deposits.
Analysts noted that the adjustment highlights the CBN’s strategy to enhance liquidity management within the banking system while incentivizing banks to hold excess cash with it.
This decision also represents a rollback of the previous policy where the CBN accepted deposits at a rate of 19% for amounts above N3 billion.
Under the old system, banks were unintentionally discouraged from using the SDF window as the returns were significantly lower than those from risk-free securities, which offered yields of about 30%.
By removing the second tier and increasing deposit rates, the CBN has eliminated this disincentive, making the SDF more attractive for banks looking to park excess liquidity.
This policy adjustment is in line with the MPC’s hawkish stance, which has seen the MPR remain elevated at 27.5%.
