The Monetary Policy Committee increased rates in a meeting by unanimously voting to raise the MPR (Monetary Policy Rates) by 150bps to 13.00% in its 3rd meeting of the year.
The results of the votes are as follows;
6 members voted for a 150bps, 4 voted for a 100bps hike and 1 voted for a raise of 50bps.
According to the CBN Governor, the rates hike was necessary due to the sharp rise in inflation across both advanced and emerging market economics and the consequential rate hike by the major central banks such as the Us, Fed, Bank of England, European Central Bank and Bank of Canada.
These banks ultimately impact capital flows away from emerging market economics.
Rate increase also has an ambiguous impact on the stock market. it could be a positive one for banks and other financial institutions that can earn more on their loans and assets. this events could also lead to sales of stocks as fixed income securities- bonds and treasury bills by investors which depressed the valuation of companies. Reports have it that though the market was already in profit taking mode, stocks experienced a sharp drop yesterday.
Loans would relatively have an higher interest becoming more expensive. for persons with a variable rate loan, expect an increase in rates. Fixed income investment becomes higher in interest. New fixed treasury investments in things like treasury bills, commercial papers, bonds and fixed deposits would be at a higher interest rate. The value of existing bonds and treasury bills would however witness a decline and possibly impacting your investment in fixed income/bond mutual funds.
Possibilities of impacting Exchange Rates becomes high however higher rates are known to attract more Dollar supply which should help the exchange rate.
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Inflation might not reduce. normally higher interest reduces inflation, however in Nigeria, inflation is pushed by cost and there’s no clear impact of interest rates on it. prices of good and services are still high which means inflation is more likely to persist.
Personal savings might as well not be affected. it is known that banks don’t increase the rates on savings accounts due to the increase in MPR so it’s more likely there would be no increase or impact. moreover banks do not give interest pay into savings account especially if 5 withdrawals are made on such account in a month.
