What CBN’s 14% interest rates mean for your loans and deposits

Central Bank of Nigeria Governor Godwin Emefiele announced that the monetary policy committee had voted to raise its benchmark interest rates to 14%. from 13%.

The Central Bank in its last meeting of the MPC had raised the interest rate from 11.5% to 13.5% in May 2022, however, with the inflation rate still exceeding 18%, the CBN has further increased the rate to 14% in an effort to combat the rising cost of goods and services.

This latest increase will have a significant impact on the economy, especially in the personal and corporate lending area of ​​the Nigerian economy.

Indeed, the monetary policy rate (MPR) is considered a benchmark rate in the financial services industry because it is the rate at which the CBN lends money to banks and vice versa. The MPR is also used by the CBN to control the money supply in the economy.

  • For example, if he increases the MPR as he has just done, he is adopting a restrictive policy, which means that he wants to slow down credit and, in the short and medium term, the rate of inflation.
  • When interest rates rise, borrowing tends to shrink unlike at low interest rates.
  • Conversely, when the CBN cuts its interest rates (MPR), it signals an increase in lending. The lower the interest rates, the easier it is for people to borrow more.
  • Borrowing also means that economic activities will be stimulated in the economy, which will lead to more jobs and general economic growth.

What this means for everyone

People – an increase in the MPR means that it will now cost more for Nigerians looking to borrow money from banks for loans such as personal loans, car loans, mortgages and other forms of lending to the consumption.

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Companies – an increase in the MPR will also lead to an increase in interest rates on overdrafts, business loans, structured loans, refinanced loans, forgiveness loans and other forms of credit facilities offered to businesses.

In general; those who borrow will likely see higher interest rates while those who save may attract higher interest depending on their financial strength.

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  • Those who already have existing loans might be waiting for letters from their banks notifying them of a likely increase in their interest rates.
  • Currently, prime rates stand at around 12% compared to 11% since the CBN raised the MPR in May. It is likely that these rates will continue to increase slightly.
  • Conversely, savings deposit rates will also be expected to rise, but this hardly happens during a rise in monetary policy rates.
  • For instance. Savings deposit rates fell to less than 5% for one-year fixed deposit rates according to CBN data.

But you can always push

  • However, we expect investors with large liquidity such as N100 million and above will be able to push their banks to higher deposit rates due to the higher MPR. This will of course also depend on the mandate.
  • Those who also save money in microfinance banks should also get the banks to raise their deposit rates based on the higher MPR.

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