The Central Bank of Nigeria (CBN) on Tuesday hiked the Monetary Policy Rates (MPR) from 13 per cent to 14 per cent.
Godwin Emefiele, governor of Nigeria’s apex bank, made this known while briefing the media in Lagos.
Currently, the global economy is facing a major challenge, which some experts have attributed to the ongoing war between Russia and Ukraine.
In this piece, we highlight four possible ways the hike in interest rate could affect you.
INCREASE IN LENDING RATES
The reason for the hike, according to the CBN, is to help address Nigeria’s rising inflation, as an increase in interest rate is intended to reduce the amount of money in circulation, resulting in a decrease in the inflation rate. One of the implications of the increase is that lending rates by banks will also increase.
GOODS AND SERVICES WILL BECOME EXPENSIVE
Also, the cost of infrastructure and luxury goods and services will become more expensive because borrowing money has become more expensive. For instance, the prices of cars and houses could go up due to the fact that most real estate companies borrow to raise these structures. A similar scenario could play out in the auto sector.
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For traders in the stock market, stocks may record depreciation in growth as a result of hike in CBN’s interest rates. Companies like Dangote, MTN, Glo, and other big firms may see their stocks depreciate due to the high rates. In many cases, interest rates hike is usually accompanied by depreciation in stocks.
STRUGGLE TO PAY SALARIES
In the manufacturing sector, the implications of the hike in interest rate could mean a slow down in productivity, as manufacturers could struggle to keep machinery in operations and pay salaries. This is because manufacturers who look forward to borrowing for expansion and production may be discouraged due to high lending rates.
For instance, manufacturers in the production of beverages and other commodity sectors like Nestle, among others may struggle with high number of recurrent expenditure which may lead to job loses.