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How To Make Money From The CBN’s 15.5% Interest Rate Increase

The benchmark interest rate (MPR), according to Nigeria’s Central Bank Governor Godwin Emefiele, has risen to a two-decade high of 15.5% interest rate.

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At the conclusion of the monetary policy meeting conducted on September 26 and 27, 2022, he issued this declaration.

The rate increase amounts to a 150 basis point increase from the previous rate of 14%, and the cash reserve requirement (CRR) was also raised to 32.5%.

The CBN made a bold effort to control inflation as the money supply increased to its greatest level on record, as seen by the MPR growth, which is at its highest rate in the last 20 years.

The previous rate hikes, according to the CBN’s Monetary Policy Committee, have already slowed the rate of money supply in the economy, implying that the recent rate hike was intended to complement those made before.

“The MPC noted that a tight policy stance would help consolidate the impact of the last two policy rate hikes, which is already reflecting in the slowing growth rate of money supply in the economy. It also felt that an aggressive rate hike would slow capital outflows and likely attract capital inflows and appreciate the naira.”

Although the apex bank advocated these possible advantages, the rate increase has other effects on the Nigerian economy, which we covered in this post.

We also think that a raise in the economy’s benchmark interest rate presents investors with opportunities to profit. Here are a few of the ones that we located.

1. Ask for higher rates on your fixed deposits: Assertive savers can call their fund managers straight now to renegotiate their fixed deposit rates.

  • New fixed deposit investments made while this is ongoing ought to offer you a rate that is far greater than what they do right now.
  • Investors who have money in mutual funds or other programs with fixed returns could also expect to see increased returns.
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2. Be on the lookout for high bond yields:  when interest rates increase nationwide, bond prices might crash, causing yields to spike.

  • For investors with significant financial resources, this is a fantastic opportunity to purchase bonds at a significant discount to their face value.
  • While bond prices may climb shortly after, now is a wonderful time to acquire them because yields are high.

3. Buy the dip in the stock market:  We also think that share prices will fall, thus it is not a great moment to buy in the Nigerian stock market.

  • However, being unattractive only lasts for a short time, therefore cash-rich investors can search for excellent Nigerian equities they may purchase for low prices.
  • We’ll advise waiting until stock prices have hit multi-year lows before acting. Stocks with a price-to-earnings ratio less than 2x and dividend yields in the double digits are wise investments for investors.
  • Given that banks often profit from rising interest rates, investing in banks may only be a good short-term option.

4. Purchase real estate: Landlords could anticipate more rental income as a result of rising interest rates, particularly those who do not hold mortgages.

  • Developers who took out loans to finance the construction of brand-new residences or commercial buildings will have to raise the price of their units, pushing tenants to raise rent.
  • While rent hikes are a way for leveraged developers to pay their financial obligations, for landlords without loans, they essentially amount to free money.
  • We also see a potential benefit for real estate investors who are either nearing completion of their projects or have real estate listed for sale.
  • They’ll probably be able to purchase the properties for more money if they’re in prime areas.
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5. Set your eyes on asset fire sales: We also anticipate that some developers who are unable to make loan payments may be compelled to sell assets under pressure.

  • People may fire sell a lot of their assets at low prices in order to pay off debts and other commitments.
  • This opens up purchasing options for those with large wallets seeking a fantastic deal.
  • If the buyer can provide evidence of their liquidity, the majority of fire sale asset sellers frequently respond favorably to cash and can provide quite significant discounts.

6. Geffen product vendors: These are items that everyone must purchase, rain or shine.

  • In high-interest rate circumstances, sellers of these commodities will profit more, especially if they practice strict financial management.
  • In times like this, you should think about starting these kinds of businesses; else, you risk going out of business very rapidly.
  • Dollar earners continue to prevail Although the CBN’s interest rate increase is intended to stop the Naira from weakening versus the dollar, we still think that buying assets with a dollar value is the greatest insurance.

The most recent rate increase decision, which supports our story from the previous few months, further supports the case.

  • Opportunities to make money in foreign exchange should be taken advantage of because doing so will provide them more naira to spend and maintain their purchasing power.
  • It is not necessary to mention that the dollar is currently the strongest currency in the world and is devouring other currencies on a worldwide scale.
  • Exporters and anyone earning salaries in dollars ought to have money by now.
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