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 Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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