CFG Advisory Calls For Policy Action To Narrow Nigeria’s Interest Rate Spread

The CFG Advisory has urged policymakers to address Nigeria’s high interest rate to deposit spread, citing its negative impact on GDP growth, investment, manufacturing, and savings.

The advisory firm warned that the widespread—caused by high lending rates relative to low deposit rates—makes borrowing more expensive, discouraging investment and economic growth while simultaneously reducing incentives for saving.

The CFG stated this in a report written by Mr Mustafa Chike Obi and the Chief Executive Officer CFG advisory, Adetilewa Adebajo, tagged ‘Adverse Effects Of High Interest Rate Spreads On The Nigerian Economy’ and seen by THE WHISTLER.

According to CFG Advisory, the high interest rate spread exacerbates Nigeria’s output gap, the difference between actual and potential economic output. The firm noted that high borrowing costs particularly harm manufacturers, who struggle to access credit, leading to reduced productivity and slower GDP growth.

“Addressing this issue requires a coordinated approach from monetary and fiscal authorities.

The Central Bank of Nigeria (CBN) can play a crucial role by narrowing the interest rate spread through policy adjustments such as lowering lending rates, increasing deposit rates, and reviewing statutory levies. Additionally, improving the efficiency of the banking system through investments in technology, reduction of operational costs, and enhanced risk management can help lower lending costs and encourage savings.

Beyond monetary policies, the government can implement structural reforms to foster economic stability. Investments in infrastructure, support for entrepreneurship, and incentives to attract foreign investment can help strengthen Nigeria’s financial sector and overall economy,” it added.

CFG Advisory also highlighted the implications of a high interest rate spread on financial markets. While banks benefit from higher lending margins, excessive spreads can ultimately reduce lending activities, limiting credit accessibility for businesses and consumers. This weakens monetary policy effectiveness and can hurt long-term bank profitability.

According to the advisory, releasing a portion of Cash Reserve Requirement (CRR) funds and directing them toward lending in critical sectors at competitive interest rates can help reduce lending costs, stimulate productivity, and boost GDP growth.

Rationalising statutory levies such as AMCON, NDIC, EMTL, cybersecurity tax, and windfall tax would ease the financial burden on banks, allowing them to lower lending rates and increase deposit rates. Improved coordination between fiscal, monetary, trade, and industrial policies is also essential to enhancing economic stability and reducing interest rate spreads.

By implementing these measures, Nigeria can improve its credit market, foster financial inclusion, and promote sustainable economic growth. A progressive and well-coordinated policy approach will be essential in addressing the structural and regulatory issues behind the country’s high interest rate to deposit spread.

CFG Advisory Calls For Policy Action To Narrow Nigeria’s Interest Rate Spread is first published on The Whistler Newspaper