Nigeria’s Interbank Lending Rate Reaches 5-Year High Amid Central Bank’s Tightened Monetary Policy
Nigeria’s interbank lending rate hit a five-year high of 28.58 percent in January 2025, as the Central Bank of Nigeria (CBN) intensified its monetary tightening measures. This rate represents the interest charged between banks for short-term loans and reflects growing challenges in liquidity management. The dramatic rise in interbank rates over the past five years—from a low of 4.40 percent in January 2021—signals tighter cash conditions in the banking sector, resulting in higher borrowing costs for businesses and consumers.
The surge in the interbank rate mirrors the CBN’s shift from an expansionary monetary policy to a more restrictive approach aimed at curbing inflation. Analysts suggest that the CBN’s decision to raise its Monetary Policy Rate (MPR) significantly has contributed to the increase in borrowing costs. From a modest 11.50 percent in 2021, the MPR has climbed to 27.50 percent by early 2025, with a substantial hike of 875 basis points in the past year alone.
The CBN’s policy has successfully moderated inflation, which dropped to 23.18 percent in February 2025, down from 24.48 percent in January. However, this has come at a cost, as liquidity in the banking system has diminished. To manage excess liquidity, the CBN increased its Open Market Operations (OMO), selling N11.8 trillion in securities in 2024, a drastic rise from the previous year. These measures have significantly reduced the money supply, raising borrowing costs and impacting the availability of short-term funds for banks.
As of March 2025, short-term borrowing rates have continued to soar, with the Overnight lending rate reaching 32.83 percent and the Open repo rate standing at 32.42 percent. Despite a potential easing in borrowing costs, experts believe that the full effects of past rate hikes will continue to affect lending markets. With the CBN focused on stabilizing the economy, businesses and consumers are likely to face high borrowing costs for the foreseeable future.
Source: Business day