Monetary Policy: Banks Commence Adjustment of Interest Rates
Commercial banks across Nigeria have begun revising their interest rates following the recent changes in Monetary Policy Rate (MPR).
This is coming after the Central Bank of Nigeria (CBN) raised it’s benchmark lending rate to 18 per cent last month in a push to contain inflation.
Addressing newsmen at the bank’s Monetary Policy Committee (MPC) meeting, the CBN Governor, Godwin Emefiele, said that the committee voted to keep the asymmetric corridor at +100 and -500 basis points around the MPR, adding that the MPC also voted to keep the Cash Reserve Ratio (CRR) at 32.5 per cent as well as the liquidity ratio at 30 per cent.
Citing price and exchange rate pressures and expectations of a removal of petrol subsidy behind their decision, Emefiele, noted that the apex bank is not optimistic that inflation by May will trend downward due to a range of factors.
“What we as the CBN will continue to do is reduce the margin gap between the policy rate and inflation because it is currently wide which is negative in real rate terms.
“This negative real rate can bring disincentive to investments and everything has to be done to rein in inflation. Going forward, we will do it moderately to avoid the contagion and instability effect in the financial system,” he said.
Hence, banks such as Access Bank, Union Bank, amongst others in separate emails sent to their customers on Wednesday, said, “This is an important update on interest rate. Following the recent changes in MPR, the interest rate on savings account as well as others has been revised. The new rates are effective immediately. The goal of the directive is to divert liquidity away from risk-free instruments to the real sector. However, analysts believe that the new interest rate might not tame inflation and will lower the cost of funds for deposit money banks (DMBs) and dampen depositors’ savings appetite.
Speaking to Daily Sun, Mike Eze, a stockbroker, said, “CBN will tell you that the action was taken to fight inflation, but Nigeria’s activities will tell you that things like this will not work. Because when you raise the interest rate, it means people who want to borrow money from the bank will have to pay more, and the cost will be added to the cost of production, which in turn affects the price.”
Raising MPR will not necessarily be the answer”.
For his part, the Chief Executive Officer, Cowry Asset Management, Johnson Chukwu, said, “the persistent increases in interest rates would contract economic activities, raise cost of credit, and drive up cost of goods. It is possible to shut down the productive sectors with this stance”
