Benchmark Lending Rates Increase

Reuters announced just lately that the Nigeria’s central bank suddenly put up its benchmark lending rate by 25 basis points on Tuesday. This caught most of the analysts off guard as Nigeria moved its interest from building growth to preventing inflation.

Central bank governor Lamido Sanusi has tended to place economic development in Africa’s main oil supplier ahead of preserving a lid on selling price rises, particularly subsequent to a near collapse of the financial system last year.

Notwithstanding, Sanusi said reforms brought in since he bailed out nine banks a year ago ensured there was now leeway for monetary restriction, raising the benchmark lending interest rate to 6.25 percent from 6.0 percent in the first hike in more than a year.

“The committee is completely satisfied that ample improvement has been made in banking sector reforms to mitigate the associated risk of monetary tightening to financial institutions,” he advised a news conference in the capital, Abuja.

He also narrowed the interest rate lending and deposit corridor for commercial banks that sits either side of the bank’s benchmark level by lifting the deposit rate to 3 percent lower than the benchmark from 5 percent up until recently.

Analysts said the two moves — essentially a raising of official deposit and lending rates to 3.25 and 8.25 percent respectively — showed determination to tame rising prices that quickened to 13.7 percent year-on-year in August from 13.0 percent the previous month.

This comes after the State Bank Of India increased their benchmark lending rates by 0.5% in August and Canada increased their benchmark lending rates in June – both seemingly bothered about inflation on the back of strong growth.

The chief cause for worry to the man in the street is that capital will probably become more complicated to raise and more costly to borrow. This places pressure on the banks to strengthen their lending criterion and basically makes things a bit more costly to produce and sell. Price tags go upward in the short term and so do interest rates. So home loans and car loans end up being more expensive and disposable money shrinks. – So spend more conservatively and be careful about new debt.

Having said that the Federal Bank reiterated that it will keep the benchmark lending rate in a range of zero to 0.25 percent “for an prolonged period.”

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