Nigerian Banks Increase Interest Rate By 2%

Nigeria’s Commercial Banks have implemented interest rate hikes for loans raising rates by as much as 200 basis points (2%).

The interest rate hike is coming on the heels of the recent increase in the central bank’s monetary policy rate (MPR) which was jacked up from 11.5% to 13%, a one-hundred-and-fifty-point basis point increase.

The MPR is a benchmark rate used by the apex bank to lend money to commercial banks in Nigeria. Banks often add a premium to the MPR when setting interest rates for their borrowers.

The interest rate increases are with immediate effect giving customers no choice but to plan ahead or look for alternatives to fund the interest rate hikes.

According to a Nairametrics survey, while banks are quick to adjust interest rates for borrowing upwards, savings deposit rates remain the same.

Past interest rate hikes from banks have often gone without any form of control leaving it to market forces to determine. The Central Bank often provides guidance on rate bands, with maximum and prime lending rates often the guide.

The latest data from the CBN indicates the prime lending rate was 11.8% in April while the maximum lending rate is 28.79%. It is expected that the rates will increase by at least 2%.

The Monetary Policy Committee of the Central Bank of Nigeria voted unanimously last month to raise the benchmark interest rate to 13% after two years of expansionary monetary policy.

While the CBN’s hawkish move is targeted at curbing the rising rate of inflation in the country, it is likely to slow down economic activity in the country especially if it slows down loan creation.