CBN’s 13% interest rate approval: Borrowers to pay more for loans
…As CBN blames rising inflation, aggregate demand
…Firms up 5% subsidy rate on Agric, Health, Power, Manufacturing sectors
…New interest rate will address concerns in Agric activities, reform Fx market, inflows — CPPE
By Abimbola Abatta
The banks in Nigeria will receive more from borrowers following the Central Bank of Nigeria’s unanimous decision to raise the Monetary Policy Rate (MPR) to 13 per cent.
The Governor, Central Bank of Nigeria ( CBN) Godwin Emefiele, disclosed this yesterday while briefing journalists on the outcome of the bank’s Monetary Policy Committee (MPC)’s 142nd meeting held in Abuja.
Noting that the MPC of the Central Bank of Nigeria (CBN) voted unanimously to raise the interest rate to 13 per cent, he said the development aims to curb the country’s rising inflation rate.
Nigerian NewsDirect reports that the apex bank’s MPC raised the benchmark interest to 13 per cent, 150 basis points above the previous rate of 11.5 per cent.
The development is the first in two and a half years that the committee would increase the MPR, which forms the baseline interest rate in an economy while every other interest rate used within such an economy is built on it.
Emefiele said, “The sharp rise in inflation across both the advanced and emerging market economies has generated growing concerns among central banks as the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels.
“Consequently, the major central banks such as the U.S. Fed, the Bank of England, European Central Bank, and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rate which may ultimately impact capital flows away from emerging market economies.”
He added that the committee voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR, as well as Cash Reserved Ratio (CRR) at 27 per cent.
The CBN Governor, however, noted that the committee voted to retain all other parameters.
On the country’s Agric, Health, Power, and Manufacturing sectors, the apex bank maintained the 5 per cent subsidy rate.
“The MPC is of the view that rates on the development finance initiatives of the Bank should remain at 5 percent till March 2023,” Mr Emefiele said.
The implication of the retention is that these sectors despite having benefitted from trillions of dollars in intervention funds from the central bank will continue to pay at 5 per cent.
Similarly, the MPC’s maintenance of 5 per cent interest rates for intervention funds aims to stimulate economic growth in the key sectors it is funding.
New interest rate will address concerns in Agric activities, reform Fx market, inflows — CPPE
Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE), while reacting to the development, averred that the new interest rate will address concerns in Agric activities, reform Fx market, and inflows.
In a statement, the CPPE divulged that the increase in interest rates is understandable, considering the rising inflation among other challenges bedevilling the objectives of the apex bank.
According to the agency, “The outcome of the MPC meeting was not unexpected having regard to the intense inflationary pressures, the increasing risks to price stability and the policy tightening trend by Central Banks globally. The primary mandate of the CBN is price stability.
“Numerous headwinds had posed significant risks to this critical CBN objective. Some of these include the surge in commodity prices and impact on energy costs, the spike in domestic liquidity from electioneering related spending and global supply chain disruptions.
“The hike in MPR by 150 basis points to 13% by the MPC is therefore understandable. But whether this would significantly impact inflation is a different matter. Already, bank lending has been constrained by the high CRR (many operators in the sector claim that effective CRR is as high as 50% or more for many banks), the discretionary debts by the apex bank, the 65% Loan to Deposit Ratio (LDR) and liquidity ratio of 30%. The lending situation in the economy is already very tight.
“The Nigerian economy is not a credit-driven economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand.
“The level of financial inclusion in the Nigerian economy is still quite low, access to credit by households and MSMEs is still very challenging, and the informal sector accounts for close to 50% of the economy.
“The transmission effects of monetary policy on the economy is therefore still very weak. In the Nigerian context, price levels are not interest sensitive. Supply-side issues are much more profound drivers of inflation.”
