The full implication of the recent massive mopping by the Central bank of Nigeria (CBN) is beginning to materialize with the commercial banks hiking lending rates by a whopping three per cent to about 38 per cent after the CBN debited N6.9trillion on Thursday last week.
Analysts say, the increase is as a result of the decision of the Monetary Policy Committee (MPC) to increase Cash Reserve Ratio (CRR) to 32.5 per cent.
With this development that is envisaged with the raise of CRR, a reliable source working with one of the banks disclosed that interest rates on new loans could rise to as much as 35 per cent while existing loans with floating rates were also being repriced.
The banker who pleaded not to be mentioned also disclosed that some of the banks have had to increase the lending rates three times in two months, describing the scenario as outrageous.
In the last four months the CBN has increased the CRR by 400 basis points to 32.5 per cent last MPC meeting on Tuesday, September 27 up from 22.5 per cent. CRR refers to the percentage or proportion of a bank’s total cash deposit required to be kept as reserves with CBN.
The latest interest rate hike is expected to cause lesser investment in the equity market. It will also impact the commodity market due to the limited availability of disposable funds for investments.
The new rate hike will also impact the exports and imports segment of the economy as it is expected to limit the output from industries with regard to products and services as lesser resources are deployed into production and expansion plans. This development can result in people looking for foreign goods and services to fulfill their needs, meaning that imports will rise while exports decrease. This will definitely result in downward pressure on the country’s GDP.
Banks’ total deposits as of last month stood at N21.43trillion. Under this new CRR ratio, it implies that a whopping N6.9trillion has been sterilized or kept lying dormant as banks’ buffer or reserve with the apex bank and regulator of the financial market.
The immediate implication of the implementation of this measure is the restriction in the amount of money available to banks for lending in the economy as CBN battles to tame inflationary pressure (currently at 20.52 per cent as of August) with an aggressive contractionary monetary policy stance.