Interest Rate

Last updated on
February 17, 2022

Interest rate is the cost of borrowing money or the incentive to save it. It is calculated as a percentage of the borrowed or saved amount.When one takes out a home mortgage, one borrows money from a bank.  Other loans can be used to purchase a car or any other service or commodity.

Financial institutions most especially banks borrow money from customers in the form of deposits, and interest is what they pay a customer in exchange for the use of the money the customer deposits.

Deposit funds are used to fund loans.

Borrowers are charged slightly higher interest rates than depositors. The distinction is their profit. Because banks compete for both depositors and borrowers, interest rates remain within a narrow range of one another.

Nigerian Context

The official interest rate in Nigeria is the Monetary Policy Rate (MPR). and the Monetary Policy Rate in Nigeria is decided upon by the Central Bank of Nigeria. Currently, Nigeria’s monetary policy rate is at a six-year low of 11.5% as of January 2022.

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