Sanusi fires first shot as MPR is Hiked. Interest Rates to rise by 2.75%

As predicted yesterday the Monetary Policy Committee jacked up MPR by an astonishing 275 basis point (2.75%) to 12%. They also increased the bank reserve ratio from 4% to 8%. The bank reserve ratio is the amount of cash deposits the bank must keep with the CBN.

This is an obvious move to mop up money supply in the economy. The CBN believes the biggest danger out there is inflation which if not curbed will see prices of goods and services skyrocket. Ironically inflation has moved in the opposite direction in recent times a it has dropped to single digits. Inflation rate for September is yet to be published though. Maybe then we will know where we are. They also believe there is so much pressure on the Naira as there are just too many Naira chasing dollars.

For now, we all have to brace up. The last time MPR was this high was almost 2years ago. The implication of this is a definite rise in interest rates from the banks. Companies requiring overdraft facilities to run their business will feel the pinch more than any other. For some of us on consumer loans I suggest we clutch on to our amortisation schedule as we might see a dramatic rise in our monthly repayments.