The International Monetary Fund (IMF) says Nigerian banks raise lending rates
rapidly when monetary policy is tightened but are slower to reduce borrowing
costs or increase returns to savers.
At its last monetary policy committee (MPC) meeting, the Central Bank of
Nigeria (CBN) retained the monetary policy rate (MPR), which benchmarks
interest rates in the country, at 26.5 percent.
The committee further retained the cash reserve ratio (CRR) for deposit money
banks at 45 percent, merchant banks at 16 percent, and non-TSA public sector
deposits at 75 percent.
In its June 2026 country report titled ‘Nigeria: Selected Issues,’ the IMF said the
transmission of monetary policy has improved since the unification of Nigeria’s
foreign exchange (FX) market in June 2023, although significant distortions
remain within the banking system.
“Interest rate transmission displays a clear “rockets-and-feathers” pattern, with
borrowing rates adjusting upward rapidly during tightening cycles but declining
only gradually when policy is eased,” IMF said
“When the CBN tightens, wholesale and lending rates respond strongly and
more than proportionally: a 100 basis-point MPR hike raises T-bill and lending
rates by roughly 175–180 basis points on impact, whereas a comparable cut
lowers them by only about 25–30 basis points.
“This asymmetry – statistically significant – implies that banks transmit
tightening rapidly and even amplify it but adjust much more slowly during
easing cycles.
“By contrast, while the interbank rate responds symmetrically (around 0.6 in
both directions) and deposit rates show little response either way (around 0.12),
both are not significant.”
According to the IMF, savings deposit rates have largely remained within the 3
percent to 7 percent range even after the monetary policy rate (MPR) was raised
to 26.75 percent in 2024.
The report attributed the trend to limited competition for deposits and the
presence of what it described as “captive depositors” with few alternative
investment options.
The IMF also said Nigeria’s transition to a market-determined exchange rate
regime has fundamentally changed the country’s inflation dynamics.
According to the report, the June 2023 unification of the FX windows ended a
system in which the official exchange rate functioned largely as a policy tool
rather than a market signal.
The lender said exchange rate movements now play a more direct role in
driving consumer prices.