- Nigerians may face difficult times in the next weeks as a result of US and UK interest rates increase, as well as Russia's ongoing conflict with Ukraine
- From Naira depreciation to growing debt payment costs and expensive importation of petrol and other items these are some of the expected headaches.
- In the recent week's US, UK have all announced increases in their interest rates in a bid to fight rising inflation
Aggressive interest rate rises by major central banks in the developed world are causing pain to Nigerian businesses, households and investors through costly loans, and weakened Naira.
The market outlook turned gloomier this week after the Bank of England and the Swiss National Bank followed the US Federal Reserve is pushing up interest rates to tackle soaring inflation.
US raised its interest rate to 1.75%, the UK to 1.25% and the Swiss government by 3%.
The rate hikes mean a stronger currency for the developed countries to the detriment of most of the world’s currencies including Nigeria's Naira.
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According to Investopedia, higher interest rates mean higher returns for investors, meaning more foreign investors are likely to live in Nigeria in search of more as money goes where money grows.
Consequences of higher interest rates in developed countries for Nigeria
External loans to get more expensive
A major consequence of strong foreign currencies will have is the cost of payment of Nigeria's external debts.
Should the government resume its decision to collect another loan the interest rates will be higher.
A Higher borrowing cost is troubling particularly when you take into consideration that IMF is warning that the debt servicing could gulp 100% of federal government revenue.
It is not only government, corporations and institutions that borrowed in dollars may be put under extra strain and might be forced to increase goods to add to their earnings.
Cost of importation
Higher interest rates will mean Naira depreciation and more pain to importers.
Nigeria is largely an import-dependent country from petrol to machinery and raw materials.
The strengthening of dollars and other foreign currencies could mean more expensive importation and ultimately a higher cost of goods for Nigerians.
Legit.ng had earlier reported that in the first three months of 2022, Nigerians spent a whopping N5.9 trillion on importation.
This amount might not be enough to import a similar quantity of products in the next months.
One obvious impact is that foreign investors will enticement of more investors to the US, UK others.
Already, Nigeria’s capital inflows hit a four-year low of $9.66 billion in 2020, before dropping to $6.7 billion in 2021, data from NBS report shows.
IMF calls on Nigeria to abandon the official exchange rate
Legit.ng had earlier reported that the International Monetary Fund is asking Nigeria to ditch the official exchange rate.
According to the IMF, the use of the official exchange rate is hurting the economy of Nigeria and asked the CBN to review its policies.
IMF also called for the Nigerian government to do away with fuel subsidy and use the funds in building infrastructure.