The effect of the increase in the Cash Reserve Ratio (CRR) on interest rates will push up borrowing costs to 33 – 35 percent per annum (p.a), says the Managing Director of Financial Derivatives Company (FDC) Limited.
In the firm’s latest economic bulletin, Rewane observed that the default rate of loans will increase proportionately and that forex losses due to the payment of backlog at the new exchange rate will hurt corporate performance.
He also observed that there are expectations that the duty-waived imported commodities will start arriving at the end of October.
The Monetary Policy Committee of the Central Bank of Nigeria voted to increase the monetary policy rate, which measures the benchmark interest rate, to 27.25 percent. The monetary policy rate (MPR) is the baseline interest rate in an economy, from which, other interest rate used within an economy is built.
The new rate reflects an 8.5 percent increase in interest rates under the current leadership, which took office a year ago.
Despite the Monetary Policy Rate (MPR) remaining flat at 26.75 percent between July and August 2024 (currently 27.25 percent), the Nigeria’s banking sector average prime lending rate increased to 17.01 percent in August 2024, the highest since April 2019.
According to data leased by the Central Bank of Nigeria (CBN), average prime lending rate was at 18.23 percent April 2019 when MPR was at 13.50 percent
The prime-lending rate indicates the possible rate offered to the most credit-worthy customers by Nigerian banks.
Prime lending stood at 15.89 percent in July 2024 from 15.85 percent for June 2024; it reached an all-time high of 19.66 percent in November 2009 and a record low of 11.130 percent in March 2021.
The CBN, under Mr. Yemi Cardoso, has increased the MPR for the fifth time to combat inflation and foster economic stability.
These increases, totalling 850 basis points since Cardoso’s appointment, have been driven by efforts to tackle the country’s persistent inflation challenges, which include high core and food inflation.
Nigerian Tribune checks revealed that Wema Bank Plc, followed by Signature Bank, Keystone Bank Limited, Unity Bank Plc, among others have the highest prime-lending rate above 30 percent in the manufacturing sector as of August 30, 2024.
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