CBN Cuts MPR

The CBN this week cut the Monetary Policy Rate or MPR this week from 13% to 11%, this was the first rate cut in nearly 6 years.

The MPR is the rate at which the Central Bank of Nigeria lends to commercial banks, so if a bank borrows at 11%, it can lend to its customers from 11% not less than 11%.

The CBN reduced the MPR rate to boost lending to the economy. The economy as measure by the GDP growth rate which tracks output has slowed down. Thus by reducing the MPR, the implicit cost of borrowing should reduce. This allows customers get loans cheaper, the hope being the loans will then be pumped into the economy and jobs created.

The concern on a macroeconomic level is if the banks will not lend out the deposits they have accumulated in the vaults even as they can borrow cheaper from the CBN. As long as “risk free” investments like FGN Bonds are paying double digits, this worry will remain.

Also on the flip side, if you are seeking to invest money in a bank, you will see a reduction in the rates the bank will offer you.
However if you have a loan or facility with any bank, go back and negotiate a review of the interest rate that you’re paying. Your rates should come down as the MPR has come down, ask your account officer.

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