Again, CBN Increases Interest Rate To Get Loans From Zenith, Access, UBA, Others
- The CBN has announced that it has increased the benchmark interest rate by 24.75%
- This shows a 200 basis point from the earlier 22.7% it announced in the previous meeting
- Economists have said the new rate is contractionary as it is supposed to help curb inflation
Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
The Central Bank of Nigeria's Monetary Policy Committee (MPC) raised the benchmark interest rate by 200 basis points to 24.75%.
Source: UGC
Yemi Cardoso, the governor of the CBN, made this announcement in a press conference on Tuesday following the second MPC meeting of his term in Abuja, as reported by Channels TV.
This occurred roughly a month after the MPC's announcement of 22.75%.
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According to the CBN governor, the recent action is a component of the nation's efforts to counteract the growing inflation rate, estimated to be 31.70% in February.
Cardoso declared that deposit money banks would continue to maintain a 45 per cent Cash Reserve Ratio (CRR). Nevertheless, the MPC changed merchant banks' CRR from 10% to 14%.
The committee decided to keep the liquidity ratio at 30% as well.
What an increase in rate means
According to economists, the hike could be interpreted as a contractionary measure to curb inflationary pressure.
Fidelis Obaniyi explained that the move aim to have a tighter monetary stance. He said, however, that the effectiveness of this also depends on the fiscal measure as the sidekick.
In his view, higher interest rates on loans could increase profits for banks as they tend to generate more income from lending.
He added:
“However, that could also trigger higher default rates because borrowers may also struggle to meet payment requirements, leading to increase in non-performing loans.”
“It also encourages commercial banks to improve lending practices, such as reducing exposure to risky borrowers, thereby enhancing financial stability in the banking sector.”
How this affects Businesses and individuals
Obaniyi said that businesses or individuals seeking loans tend to face higher borrowing costs due to increased interest rates.
According to him, this would reduce their ability to access credit for investment (businesses) or consumption (individuals).
“For the supply side, Savers/investors may benefit from higher interest rates on savings and other commercial banks investments. However, people who invest in variable-rate loans may experience financial strain as a result of higher monthly repayments.”
Nigerian banks adjust rate for loan
Legit.ng reported that after the CBN raised the benchmark interest rate, banks repriced their assets, meaning customers would have to pay more for borrowing money.
As a result, the cost of loans, mortgages, and other credit products has increased.
Recall that the CBN raised the monetary policy rate (MPR) on February 27, 2024, from 18.75% in July 2023 to 22.75%, a 400 basis point rise.
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Source: Legit.ng
