Expect To Pay More Interest On Loans, Experts Speak On Implication Of 14% Lending Rate

Some Nigerian experts have said that reviewing the Monetary Policy Rate upwards will not address the surging inflation and will add more burden on businesses and household servicing loans.

The Central Bank of Nigeria hiked benchmark lending rate from 13 per cent to 14 per cent.

The threat posed by Nigeria’s rising inflation at 18.6 per cent was the key driver of CBN’s decision.

In May, CBN reviewed the rates from 11.5 per cent to 13 per cent due to rising prices which reflected in a 17.71 per cent inflation.

But despite the review in May, Nigeria’s inflation driven by energy crisis, naira depreciation and insecurity did not abate.

According to a CBN record, the country’s prime lending rate, a rate used by banks was 11.83 per cent, 11.96 per cent and 12.29 per cent in April, May and June.

Also Maximum Lending Rate was 27.79 per cent, 27.37 per cent and 27. 61 per cent in April, May and June respectively.

Kalu Aja, a financial market expert, told THE WHISTLER that the implication is that banks will restructure loans agreed on a floating interest rate.

A floating interest rate is an interest rate that moves up and down with the rest of the market or another benchmark rate, according to Investopedia.

Aja said going forward, households and businesses going for loan will be charged higher interest rates by lenders.

“The Monetary Policy Rate MPR is benchmark rate. CBN hiking its rate means all lenders will now offer loans at MPR Plus. So, interest rates negotiated on floating term will go up,” said Aja.

Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Public Enterprise, said investors that have already borrowed from banks will now service the loans at a higher rate.

“Already prime lending rate as a result of the last review of the MPR has gone up to 18 per cent almost approaching 20 per cent. Now what you are going to see from the banks and to investors that have already borrowed from them is s review of rates.”

“How will this investor deal with all of these? You have a heat that they are taking from the forex angle because there is a serious challenge of liquidity in the asset. They have the issue of the diesel that they are dealing with, now they are adding additional pressure on the interest rate,” he said on Arise Tv.

Yusuf said entrepreneurs will suffer more due to the increased interest rate, adding that it may dampen output growth.