Economy
EXPLAINER: How CBN’s 22.75% Interest Rate Hike May Affect You
By Dipo Olowookere
Today, the Central Bank of Nigeria (CBN), through its Monetary Policy Committee (MPC) raised the benchmark interest rate, the Monetary Policy Rate (MPR), by 4.00 per cent or 400 basis points to 22.75 per cent from 18.75 per cent.
This rate hike was inevitable, though the margin of increase was not expected.
I know you are asking how this affects you. Hey, listen carefully, you should be bothered and I will explain why.
Now, the MPR is called the benchmark interest rate because it is what commercial banks use to determine the interest rate they give loans to their customers.
If you need to secure a loan to run a business or anything, no bank will likely give you below the MPR, which as of today is 22.75 per cent.
So, if the banks before the current hike gave loans to customers between 20 and 28 per cent when the MPR was at 18.75 per cent, you can imagine what rate they will give you that loan when the benchmark rate is 22.75 per cent, do the math yourself.
And for those who had already taken loans before this rate increment, you are not spared. Expect calls from your banks from tomorrow informing you of an upward review of the rate.
If you say you are still not bothered because you have not had any reason to get a loan from commercial banks, well, I am sorry to inform you that it will also affect you.
How? Let me break it down for you.
A business owner who obtains a loan from a commercial bank at say 30 or 35 per cent based on the current interest rate hike will surely pass this cost to consumers, which includes you reading this explainer.
So, the item you get at N100 today may likely be sold at N150 or more tomorrow because of this CBN announcement.
Then why did the central bank do this at this trying time?
Well, the theoretical reason is to make the cost of borrowing (obtaining loans) more expensive to reduce your purchasing power or spending to possibly bring down the inflation rate. The idea is that if consumers reduce their spending, producers may be forced to bring down their prices to encourage spending, which will, in turn, bring down inflation, which is the average cost of goods and services.
But for investors, the current interest rate is low because it is not more than inflation, which the National Bureau of Statistics (NBS) said was 29.90 per cent in January 2024.
An investor will prefer an environment where the rate is higher than inflation to get a return on investment (ROI).
At the moment, it is at a loss of 7.15 per cent (Interest rate – Inflation rate).
So, do not be surprised when the CBN sells treasury bills at the next primary market auction between 22 per cent and 26 per cent). The coupon rates for FGN bonds will also go up to attract investors.
As for the Cash Reserve Ratio (CRR) the MPC raised by 12.5 per cent to 45 per cent from 32.5 per cent, it is to reduce the significantly cut down on the amount of money commercial banks can make available for lending to customers.
It simply means the banks must keep 45 per cent of the total customer deposits with the CBN. Through this, the central bank is also controlling the supply of money in the system.
If you need any further clarification, please feel free to reach us at [email protected], [email protected] or [email protected].
By Adedapo Adesanya
Nigeria ranked as Africa’s leading destination for upstream oil and gas investment in 2024, new research from market intelligence firm, Wood Mackenzie, has shown, accounting for three out of four Final Investment Decisions (FIDs) announced by global oil and gas majors, totaling $13.5 billion.
The FIDs announced within the Nigerian market included Shell’s $122 million investment in the Iseni Gas Project, TotalEnergies’ $566 million commitment to the Ubeta Gas Project and Shell’s approval of the Bonga North Tranche 1 project valued at around $5 billion.
According to the Special Adviser to President Bola Tinubu on Energy, Ms Olu Verheijen, these investments reflected Nigeria’s ongoing efforts to unlock its hydrocarbon potential through investor-friendly policies and strategic global partnerships.
Last year, Nigeria introduced several initiatives to create a conducive environment for oil and gas investors, including new tax incentives aimed at attracting up to $10 billion in natural gas investments.
Nigeria, which is Africa’s largest oil producer, also offered tax relief for gas investors, reducing corporate income tax and extending capital allowance benefits – for deepwater gas projects.
Other policies include the Presidential Directive on Local Content Compliance Requirements 2024 to address the reduction in oil and gas investments caused by high operating costs compared to global markets.
Also, the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines 2024 reduces the time spent to award contracts for oil and gas projects.
In addition to the directives, Nigeria also launched its 2024 oil and gas licensing round, offering 19 blocks for exploration, demonstrating its commitment to continued collaboration with local, regional and international partners.
Market analysts note that with this momentum, further FIDs are anticipated, including TotalEnergies’ expected $750 million commitment to the Ima Shallow Gas Project in 2025.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.22 per cent decline on Monday, January 20, with the market capitalisation shedding N2.35 billion to close at N1.073 trillion compared with the preceding session’s N1.075 trillion and the NASD Unlisted Security Index (NSI) going down by 6.79 points to wrap the session at 3,105.12 points compared with 3,111.91 points recorded in the previous session.
It was observed that the loss recorded on the first trading day of the week was triggered by UBN Property Plc, which crashed by 20 Kobo to trade at N2.00 per share versus last Friday’s N2.20 per share.
However, the share price of Industrial and General Insurance (IGI) Plc went up by 4 Kobo to 40 Kobo per unit from 36 Kobo per unit, it could not stop the bourse from going down at the close of transactions.
The activity chart showed that on Monday, the volume of securities traded by investors increased by 57.9 per cent to 767,610 units from the 486,215 units traded in the preceding session, while the value of shares traded yesterday slumped by 17.7 per cent to N2.3 million from the N2.8 million recorded in the preceding trading day, as the number of deals declined by 14.3 per cent to 12 deals from the 14 deals carried out in the previous trading day.
At the close of transactions, FrieslandCampina Wamco Nigeria Plc remained the most active stock by value on a year-to-date basis with the sale of 4.1 million units worth N162.9 million, followed by Geo-Fluids Plc with a turnover of 9.1 million units valued at N44.0 million, and 11 Plc with the sale of 55,358 for N14.5 million.
Also, Industrial and General Insurance (IGI) Plc closed the day as the most active stock by volume on a year-to-date basis with 25.3 million units sold for N5.9 million, Geo-Fluids Plc came next with 9.1 million units valued at N44.0 million, and FrieslandCampina Wamco Nigeria Plc with 4.1 million units worth N162.9 million.
By Adedapo Adesanya
The value of the Naira weakened against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Monday, January 20 amid FX pressures associated with this period.
Most people who came into the country for Christmas and New Year holidays are already going back and are in need of forex, putting pressure on the local currency.
Also, the poor performance of the domestic currency could be attributed to end to the 42-day access granted by the Central Bank of Nigeria (CBN) to Bureaux de Change (BDC) operators to buy forex at official price.
According to data from the FMDQ Securities Exchange, the Nigerian Naira lost 0.16 per cent or N2.47 on the greeback yesterday to sell at N1,550.05/$1, in contrast to last Friday’s rate of N1,547.58/$1.
Similarly, the Naira slumped against the Pound Sterling in the spot market on Monday by N23.39 to trade at N1,906.98/£1 versus N1,883.59/£1 and depreciated against the Euro by N23.14 to sell for N1,613.48/€1 compared with last Friday’s N1,590.34/€1.
However, in the parallel market, the Nigerian currency improved its value against the Dollar during the session by N5 to quote at N1,665/$1 compared with the previous session’s N1,670/$1.
As for the cryptocurrency market, it turned red yesterday as the US President, Mr Donald Trump, didn’t bring up the much-expected subject of crypto in his inauguration speech on Monday afternoon.
Mr Trump had promised a far more friendly crypto policy stance than the previous administration but in the long speech that announced his plans in the coming days, he didn’t make mention of Bitcoin or crypto.
Just over the weekend, the President ignited a speculative frenzy with the Friday evening launch of the Trump meme coin, which was shortly followed by a meme coin associated with his wife, Melania.
Dogecoin (DOGE) crumbled yesterday by 6.3 per cent to $0.3419, Solana (SOL) slumped by 4.7 per cent to $235.32, Cardano (ADA) fell by 3.6 per cent to $0.9777, and Litecoin (LTC) moderated by 1.9 per cent to $114.98.
Further, Ethereum (ETH) went down by 1.7 per cent to $3,241.36, Binance Coin (BNB) retreated by 1.4 per cent to $693.30, Ripple (XRP) depreciated by 1.2 per cent to $3.06, and Bitcoin (BTC) tumbled by 0.8 per cent to $101,746.99, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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