Find out how the CBN’s interest rate hike will affect you as Rewane explains the real consequences of this monetary policy change.

Bismarck Rewane, the CEO of Financial Derivatives, has asserted that modifying the Asymmetric corridor encompassing interest rates by Nigeria’s Central Bank Monetary Policy Committee would mitigate strain on foreign exchange in Nigeria.

On Tuesday, the esteemed economist revealed on Channels Television his response to CBN’s 50 basis points increase in interest rate to 26.75 percent.

He clarified that the actual issue is with regards to MPC modifying the Asymmetric corridor surrounding the Interest rate, from +100/-300 basis points to +500/-100.

He observed that this action would raise the borrowing expenses for banks and dissuade them from acquiring foreign exchange through loans taken from CBN.

According to him, the choice will increase Nigeria’s Foreign Portfolio inflows.

The 50 basis point interest rate hike is not the main event – it’s actually the Asymmetric Corridor Adjustment. This adjustment has caused banks to borrow from and purchase foreign exchange through the Central Bank at a previous rate of 26 percent.

From today onwards, their borrowing rate will be nearly 32%, which is a substantial difference of about 5-6%. This astronomical increase in the cost of borrowing acts as an obstacle for those seeking to borrow from the CBN and invest in FX.

He said that this will alleviate the burden on the forex rate. Additionally, it is a delicate means of informing banks to cease transferring funds illegitimately.

Remember that the CBN increased interest rates for the fourth time in 2024, reaching a level of 26.75 percent. This action was taken as part of efforts to address core and food inflation, which were at levels of 34.19 percent and 40.87 percent respectively.