• Sun. Aug 7th, 2022

Expect to pay more interest on loans, experts talk about 14% loan rate implication – The Whistler Newspaper

ByElla E. Kidwell

Jul 21, 2022

Some Nigerian experts have said that the upward revision of the key rate will not solve the surge in inflation and will add an additional burden to businesses and household loans.

The Central Bank of Nigeria raised the benchmark lending rate from 13% to 14%.

The threat posed by rising inflation in Nigeria to 18.6% was the main driver behind CBN’s decision.

In May, the CBN revised rates from 11.5% to 13% due to rising prices which resulted in inflation of 17.71%.

But despite the review in May, inflation in Nigeria, fueled by the energy crisis, the depreciation of the naira and insecurity, has not abated.

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

The maximum lending rate was also 27.79%, 27.37% and 27.61% in April, May and June respectively.

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

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

Aja said that in the future, households and businesses seeking a loan will be charged higher interest rates by lenders.

“The MPR monetary policy rate is the reference rate. CBN raising its rate means that all lenders will now offer MPR Plus loans. So floating forward negotiated interest rates will go up,” Aja said.

Muda Yusuf, director general of the Center for Promoting Public Enterprise, said investors who previously borrowed from banks will now repay the loans at a higher rate.

“Already, the prime lending rate following the latest MPR review has risen to 18%, approaching almost 20%. Now, what you’re going to see from banks and investors who have borrowed from them before is a rate reset.

“How is this investor going to handle all of this? You have a heat that they are taking from a forex perspective as there is a serious liquidity challenge in the asset. They have the diesel problem they are facing, now they are adding more pressure on the interest rate,” he said on Arise Tv.

Yusuf said entrepreneurs would suffer more from rising interest rates, adding that it could dampen production growth.