Mr. Godwin Emefiele, Governor of CBN

CBN’s MPRs take toll as banks’ lending rate hits 38 percent: Experts

*Analysts have suggested the latest interest rate hike in the banking sector is expected to cause lesser investment in the equity market, and also impact the commodity market due to limited disposable funds for investments

Alexander Davis | ConsumerConnect

The full implication of the recent massive mopping by the Central Bank of Nigeria (CBN) is beginning to materialise with the commercial banks hiking lending rates by whopping three percent to about 38 percent after the CBN debited N6.9trillion last Thursday.

Analysts say the increase resulted from the recent decision of the Bank’s Monetary Policy Committee (MPC) to increase Cash Reserve Ratio (CRR) to 32.5 percent.

ConsumerConnect reports the CRR refers to the percentage or proportion of a bank’s total cash deposit required to be kept as reserves with CBN.

Following this development, it is envisaged with the raise of CRR, a reliable source working with one of the commercial banks disclosed that interest rates on new loans could rise to as much as 35 percent while existing loans with floating rates were also being re-priced, Blueprint report said.

The banker, who pleaded anonymity, also disclosed that some of the banks have had to increase the lending rates three times in two months, describing the scenario as outrageous.

In the last four months, the CBN has increased the CRR by 400 basis points to 32.5 percent last MPC meeting Tuesday, September 27, 2022, up from 22.5 percent.

The latest interest rate hike is expected to cause lesser investment in the equity market, according to report.

It will also impact the commodity market due to the limited availability of disposable funds for investments.

It was gathered the new rate hike would also impact the exports and imports segment of the economy as it is expected to limit the output from industries with regard to products and services as lesser resources are deployed into production and expansion plans.

This development can result in people looking for foreign goods and services to fulfill their needs, meaning that imports will rise while exports decrease.

This will definitely result in downward pressure on the country’s GDP, according to report.

Banks’ total deposits as of last month stood at N21.43trillion.

Under this new CRR ratio, it implies that a whopping N6.9trillion has been sterilised or kept lying dormant as banks’ buffer or reserve with the apex bank and regulator of the financial market.

The immediate implication of the implementation of this measure is the restriction in the amount of money available to banks for lending in the economy as CBN battles to tame inflationary pressure (currently at 20.52 percent as of August this year) with an aggressive contractionary monetary policy stance.

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