t2luv1:


I have been saying this since the day he was appointed. Case in point before he stopped supplying forex to the bureau de exchange Naira black market rate was at 495 while the official exchange window was at 421 after he stopped the bureau de exchange supply of Forex, the Naira black market has risen to 705 while the official exchange window has risen to 431. The man created this artificial inflation and to combat this what has he proposed an increase in interest rate. The man is clueless how he managed to be CBN head is beyond comprehension. Question how many people are impacted by the interest rate in Nigeria as compared to the Naira exchange rate?

Aareakinwunmi:
They can't think on there own, always copying the US federal reserve.
Uk refuses to increase interest rate, that's a thinking country

Alexas58:
A very nice move to curb inflation and help raise the Naira.
Most people would not understand the implications of this, since they don’t understand how the forex market works

Vilgax:
scary stuff.
let's see if this can slow down inflation...

incase you don't really understand what this means, this na wetin dey sup.

when a central bank raise interest rate.
your normal bank will also respond by raising their own interest rate.
with higher interest rate, people will tend to spend less and demand for goods and services will also drop, which will cause inflation to fall.
When demand is low, most companies won't raise their prices in order to stay competitive. since prices of goods and services aren't increasing that fast, you've managed to reduce inflation.
this is how CBN raising interest rates is meant to curb inflation.
but na Naija we dey, our own economics dey always different.

LagbajaTheBEREAN:
I still don't get it, will the interest rates reflect on customer accounts?

gambojimeta:

That's because Nigeria's economy is complex and regulations is lax plus the corruption in the system.

In the obodo Oyinbo, when interest rate is increased, business and people will reduce their spending as they also need that money to service their debts obligations (remember lending and borrowing are very popular in those countries), so there are less money chasing few products. This helps slow down demand and also brings about a fall in prices of commodities; hence, reducing inflation.

In the US, Canada and other advanced countries. The economy is overheated i.e. plenty of jobs, people have lots of money to spend, economies opening up too fast, so there are more money chasing fewer goods since there was supply chain issues because of covid.

But we don't have the same in Nigeria, unemployment is extremely high, people don't have lots of money, Nigerian economy is not opening up because of covid (we weren't affected that much), Nigerian economy is not heating up, but the CBN is increasing interest rate anyway. The only reason I could think of is because of the exchange rate. Dollar is getting higher so it's being done to make buying the dollars less attractive. Perhaps, this will only apply to a few people in Nigeria as not many people in Nigeria buy dollars anyway aside those that school abroad or business men dealing with foreign export and import.

LagbajaTheBEREAN:
I still don't get it, will the interest rates reflect on customer accounts?

lasthero:
B


SMH, I think Economics should be made compulsory for everybody and every courses up to university level.


In a lay man explanation. When there are too much money in circulation or when there is a perceived inflation, government regulatory body increases interest rates to banks and bank increase interest rates to customers which reduces customer borrowing from banks and hence reduce money in circulation and reduces inflation.


On the other hand. When there are lesser money in circulation, govt reduces interest rates to banks and bank also reduce to loan borrowers to encourage loans.

In economics, it's explained in terms of bonds.

Modified.
I love the quotes and mentions I am getting from my post. And I love how folks debated my post constructively without insults. Nigerians are actually smart and brilliant ��

chinchum:


1 pound is almost equal to 1usd.

Inflation is the highest in 40years. U.k is the only developed country with inflation rate hitting double digits 10%

olaztek:
To combat inflation and unemployment, we need to make more dollars as our economy is literally import-dependent.
When there's dollar scarcity, naira will lose more value as much of it will be needed to buy the available dollar (needed to import things we consume) thereby leading to higher inflation.
To solve our economic problems, we need to create more avenue to make more dollars. Shikena

lasthero:
B


SMH, I think Economics should be made compulsory for everybody and every courses up to university level.


In a lay man explanation. When there are too much money in circulation or when there is a perceived inflation, government regulatory body increases interest rates to banks and bank increase interest rates to customers which reduces customer borrowing from banks and hence reduce money in circulation and reduces inflation.


On the other hand. When there are lesser money in circulation, govt reduces interest rates to banks and bank also reduce to loan borrowers to encourage loans.

In economics, it's explained in terms of bonds

loswhite:
The only thing that can help the naira is increased exportation to increase forex earnings. They only increase the interest rate because the American federal reserve increase interest rate

Alexas58:
A very nice move to curb inflation and help raise the Naira.
Most people would not understand the implications of this, since they don’t understand how the forex market works


Modified: to all those quoting me, it’s very simple. The game is between demand and supply!..
The naira will fall to about 690 as against the dollar soon… and continue dropping low!.. might take years to reach 500…
But we woudnt see it go higher like upto 750 as against the dollar!

Hope this explains the move of the cbn!
If they don’t do this, poverty rate and hunger would increase because the prices of things would skyrocket more

Thanks

loswhite:
The only thing that can help the naira is increased exportation to increase forex earnings. They only increase the interest rate because the American federal reserve increase interest rate

Alexas58:
A very nice move to curb inflation and help raise the Naira.
Most people would not understand the implications of this, since they don’t understand how the forex market works


Modified: to all those quoting me, it’s very simple. The game is between demand and supply!..
The naira will fall to about 690 as against the dollar soon… and continue dropping low!.. might take years to reach 500…
But we woudnt see it go higher like upto 750 as against the dollar!

Hope this explains the move of the cbn!
If they don’t do this, poverty rate and hunger would increase because the prices of things would skyrocket more

Thanks

emmaodet:

......just I mould my blocks slowly .

hrykanu231:


Please explain to me like a 5yr old, why increasing interest rate to 15.5% will help curb inflation in a country with it's economy almost at comatose.
Empirically verifiable Citations will be highly appreciated, especially in developing countries such as ours.

Thanky

Best Regards

Alexas58:
A very nice move to curb inflation and help raise the Naira.
Most people would not understand the implications of this, since they don’t understand how the forex market works


Modified: to all those quoting me, it’s very simple. The game is between demand and supply!..
The naira will fall to about 690 as against the dollar soon… and continue dropping low!.. might take years to reach 500…
But we woudnt see it go higher like upto 750 as against the dollar!

Hope this explains the move of the cbn!
If they don’t do this, poverty rate and hunger would increase because the prices of things would skyrocket more

Thanks

emmaodet:


No sir.
Interest rate and inflation goes in opposite directions or let’s say inversely proportional.
If there is inflation in a country - too many cash in the hand of people chasing fewer goods thereby driving the price of the goods up, cbn kicks in and raise interest rate to cub the menace.
It is one of the tools used to push back local currency again dollar and also brings down the price of commodities.
Examples -
Let’s assume cbn drops interest rate to 0.5%(this is what they use in Europe and US), it means cbn prints out money and give it to commercial banks at 0.5% and they the commercial banks will add there own (let’s say another 0.5% to make it 1% total because interest rate is the major source of revenue for banks to pay salaries and expand) and the push out this money and borrow citizens.
So in total, a Nigerian who goes to bank to borrow money to buy equipment for his business in china, the one that borrows to buy car,electronics at home, buy house on mortgage will only pay 1% per annum on the loan.
Imagine taking a 10m loan to build a small 2 bedroom flat payable in 20 years.
That is less than 12m in total to pay back in 20 years. It is attractive. Isn’t it?
The joy of having your home and paying back just )00k per annum or 50k per month.
That means a family where the hubby earns 100k and wife earns 50k can easily pay their house mortgage of 50k per month while still have 100k to feed the home.
This is the reality with most people abroad.
They live on loans. Cheap loans.
So attractive and very easy to get into and you work your entire life servicing loans and praying you don’t lose your job or get laid off.
Segun travels to america and within 6 months uploading his car and house. Meanwhile he will have to work next 20 years clearing it.
Now
In the cbn decides to raise interest rate from 0.5% to 15% just like nigeria. Banks will add theirs factoring in yearly inflation rate of 10-15%. They want to make money and profit too
So first they won’t borrow you a long term loan because you will default and may not be able to pay back. Also by the time you pay back, the purchasing power of the initial money borrowed you would have eroded thereby literally leading to loss for them.
So they give out loans as high as 25-30% interest because they need to make profit too.
People will avoid taking loans which in turn will drop consumer goods demand.
And since demand for commodities have dropped because people don’t have access to loans, producers don’t have a choice than to keep lowering their prices.
Inflation has been curbed but such society hardly grows.
Reason while you don’t see Nigerians taking loans to build houses or buy cars on a long term to ease their pressure thereby making the society to develop.
A 25% interest rate means a 10m loan you take to build your 2 bedroom flat payable in 20 years will result to you paying back 50-60m in 20 years.
Who does that? How is that possible to pay back? Instead of paying 60mback in 20 years, why not just I mould my blocks slowly slowly as the money dey enter they build am small small.
Reason why you see nigeria so littered with incompleted buildings or people moving into shambolic buildings where they use the wife wrapper to cover the windows, unplastered walls, planks to cover windows pending when they have small cash to do some parts and many more.

LagbajaTheBEREAN:

You've done a great job with this, I will go with your explanation, Sir.

I'm grateful for taking out your time to educate me.

Heyzee5:

Man, I love your explanation; very leyman friendly. Thank you.

Alexas58:

hrykanu231:


So quick one, if IR is at 15.5% from CBN, at what rate do you think commercial banks will lend to SMEs?
Again, do you know how many people SMEs employ and their production output. So imagine if they close shops as most of them are doing, will there still be poverty,inflation and high unemployment?