Rising interest rates have yet to provide the relief that Nigerian savers and investors had hoped for.
The yield on one-year Treasury bills has more than tripled to 10% from 3% two years ago.
However, due to the sharp acceleration in inflation, investors and savers are still stuck with the negative interest rates they experienced when interest rates were lower.
For the month of August, economists predict a 20% inflation rate. According to National Bureau of Statistics (NBS) data, it was 19.64 percent in July.
This means that investors in Nigerian one-year Treasury bills, one of the most traded government securities, have received a 9.64 percent negative return.
In Egypt and Kenya, real returns were 1.05 percent and 1.41 percent, respectively. South Africa’s return, while negative, is still better at -0.59 percent.
In August, the Central Bank of Kenya’s one-year T-bills rate was 9.9 percent, while the country’s inflation rate was 8.5 percent. Kenya has a positive real rate of return of 1.41 percent, as evidenced by this figure.
Furthermore, the Central Bank of Egypt’s one-year T-bill rate is currently 15.65 percent, while the country’s inflation rate is 14.6 percent as of August, resulting in a positive real rate of return of 1.05 percent.
South Africa, on the other hand, has a negative return of 0.59 percent. This is due to the fact that the South African Reserve Bank set its 364-day T-bills rate at 7.21 percent, which is less than its June inflation rate of 7.8 percent.
The situation is much worse for savers in naira who are stuck with low return on deposits.
“The negative return on the naira is partly responsible for the rash of investments in bitcoin and why people are not saving in naira,” a source familiar with the matter said.
The Central Bank of Nigeria (CBN) is aggressively raising interest rates in a bid to tame inflation and ultimately reduce the negative real return on investment.
The bank raised the benchmark interest rate twice already in 2022 to where it currently sits at 14 percent in a bid to tighten liquidity and curb inflation.
The CBN also directed that interest paid on savings accounts should be adjusted to 40 percent of the benchmark rate which gives savers 4.2 percent.
The efforts have not eased the pain of investors and savers.
Giving investors and savers real return on investment would take addressing the foreign exchange shortage and addressing the insecurity situation, according to some economists polled in a BusinessDay survey.
Addressing the insecurity situation and improving dollar supply would help reduce inflation, which is eating into the returns of investors.
The return on the one-year Nigerian T-bill is higher than the return on the Kenyan and South African T-bills, with the exception of the Egyptian T-bill.
“There’s still some way to go in reducing the negative return on investment despite the higher interest rates,” said Ayo Teriba, CEO of Economic Associates.
“There’s no incentive to save money in such an environment and that hurts domestic capital mobilisation,” Teriba said.
Temilade Aderibigbe, a Lagos-based fund manager, said clients were being advised to invest more in alternative assets to compensate for the high rate of inflation.
“There is a rush for alternative assets and that will happen for as long as investors and savers are not getting what they want in terms of real returns,” Aderibigbe said.
