Nigerian banks have come under scrutiny from the International Monetary Fund (IMF) for what the global lender describes as an uneven response to changes in the Central Bank of Nigeria’s (CBN) benchmark interest rate, a pattern that favours banks while leaving borrowers and savers at a disadvantage.
In its latest assessment of Nigeria’s economy, the IMF said commercial banks are quick to pass on the impact of monetary tightening to customers through higher lending rates but are considerably slower when it comes to lowering borrowing costs or improving returns on savings when monetary conditions ease.
The finding raises fresh questions about the effectiveness of monetary policy transmission in Africa’s largest economy, where the CBN has relied heavily on aggressive interest-rate hikes over the past two years to combat inflation and stabilise the naira.
The apex bank’s Monetary Policy Committee recently retained the Monetary Policy Rate (MPR) at 26.5 per cent, maintaining one of the highest benchmark rates in Nigeria’s history after a prolonged cycle of monetary tightening aimed at curbing persistent inflationary pressures.
However, according to the IMF’s June 2026 report titled Nigeria: Selected Issues, the banking sector’s response to interest-rate adjustments remains highly asymmetric.
The Washington-based institution said Nigerian banks exhibit what economists commonly refer to as a “rockets-and-feathers” pattern. Under this phenomenon, lending rates shoot up rapidly like a rocket whenever policy rates increase but drift downward slowly like a feather when rates are reduced.
According to the IMF, a 100-basis-point increase in the MPR typically triggers a much larger rise of between 175 and 180 basis points in Treasury bill yields and commercial lending rates. In contrast, a similar reduction in the benchmark rate translates into only a marginal decline of between 25 and 30 basis points in lending costs.
The implication, analysts say, is that banks not only transmit monetary tightening quickly but often amplify its impact on businesses and households, while failing to provide equivalent relief when conditions improve.
For borrowers, the trend means higher financing costs are passed through almost immediately, increasing the burden on manufacturers, small businesses and consumers already struggling with elevated inflation and weak purchasing power.
For savers, the picture is equally troubling.
Despite the sharp increase in benchmark interest rates over the past two years, the IMF noted that savings deposit rates have remained largely stagnant, hovering between three and seven per cent even when the MPR climbed to as high as 26.75 per cent in 2024.
The report attributed the weak response of deposit rates to limited competition among banks for customer deposits and the existence of what it described as “captive depositors” — customers with few attractive alternatives for investing their funds.
This means banks have largely enjoyed the benefits of higher lending rates without facing corresponding pressure to significantly improve returns to savers.
The IMF’s findings suggest that while monetary tightening has strengthened bank profitability through wider interest margins, the benefits have not been evenly distributed across the financial system.
The report nevertheless acknowledged that monetary policy transmission has improved significantly since Nigeria unified its foreign exchange market in June 2023, a reform that eliminated multiple exchange-rate windows and allowed market forces to play a greater role in determining the value of the naira.
According to the IMF, exchange-rate movements now have a more direct influence on inflation and broader economic conditions than under the previous regime, where the official exchange rate often functioned as an administrative policy tool.
The institution also highlighted the continued role of global oil-market developments in shaping domestic inflation trends.
While higher crude oil prices typically improve Nigeria’s export earnings and foreign exchange inflows, the IMF noted that they simultaneously raise transportation, logistics and production costs, which ultimately filter through to consumers in the form of higher food and commodity prices.
The report further warned against the financing of fiscal deficits through the CBN’s Ways and Means facility, arguing that excessive central-bank lending to government can expand money supply, weaken the currency and exacerbate inflationary pressures.
To improve the effectiveness of monetary policy, the IMF urged the CBN to review its cash reserve ratio framework, describing the current reserve requirement for deposit money banks — set at 45 per cent — as exceptionally high.
According to the Fund, a combination of lower inflation, improved macroeconomic stability and stronger confidence in the naira could eventually create room for a gradual reduction in reserve requirements, helping to improve credit allocation and strengthen policy transmission.
The findings come as the CBN continues to pursue its ambitious objective of restoring price stability and steering inflation toward single-digit levels.
However, the IMF’s assessment suggests that unless banks respond more evenly to both increases and decreases in benchmark rates, the full benefits of monetary policy may continue to bypass many Nigerian businesses and households.
For policymakers, the report underscores a critical challenge: raising interest rates may be relatively easy, but ensuring that the benefits of eventual rate reductions reach borrowers and savers with the same speed remains a far more difficult task.
