₦airaland Forum

My NL finance ppl and those with a knowledge of compound interest and some assets should teach our poverty challenged urchins about how long it would take to double your savings at an interest rate of 16.5%. This post is not for the starving empty stomach ppl always posting about being hungry as I used to be!

Rule of 72
Have you always wanted to be able to do compound interest problems in your head? Perhaps not... but it's a very useful skill to have because it gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.

The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.

Interest Rate:
16.5%
http://www.moneychimp.com/features/rule72.htm

Years Required for Principal to Double
Exact Answer: 4.54
Rule of 72 Estimate: 4.36

Saintinoo:
Good one, to the people shouting bad policy, where were you during your economics class.

Increasing the MPR mean people can now save and get high interest on savings, also this is the rate at which CBN loans money to commercial banks, this is a contractionary monetary policy and it is welcomed, sure it will help reduce inflation but in the short run, people might suffer a bit.

With due respect sir, I will like you to answer the following:

* What has the consistent increase in MPR at least over the last 5 MPC yielded?
* What savings are you talking about sir.? Savings where 133 million people are categorised as poor?
* Savings where the disposable income is shrinking on a daily basis?
* How well has the inflation been positively impacted at least since the beginning of the year?
* How does increase in savings interest stimulate the economy?

Sir, I wait upon you.

MiaBeer:
Thanks. I have 5 mil naira. How do I go about with it and get returns? Buy land or put it in the bank?

Invest in agriculture or buy building materials like wires and rods. Your money won't depreciate especially if you have strong knowledge of the latter - it is the surest way to beat inflation if you know what you are doing.

CBN increased interest rate to 16.5%, meaning that they are trying to curb inflation, by reducing the amount of naira in circulation, but in the other news CBN is complaining that larger amount of naira is un-banked ( meaning that the currency should be circulating), this prompted them to redesign higher naira denominations just to solve the problem of people hoarding the naira.

They increased interest rate to reduce the amount of naira in circulation, but still redesign the currency just to push back into circulation, just to stop people from hoarding naira.

Which kind yeye did Emefiele go sef

Thortp:
My brother, is that not madness of the highest order?

You can say that again.

omonnakoda:
You are right Nigeria's inflation has external causes however energy cost is minimal Nigerian petrol is among the cheapest in the world

The real culprit is government borrowing most of which is stolen or deployed unproductively/
Government is the largest borrower , not industry or consumer and a lot of that borrowing is from the CBN which is effectively printing money to fund deficit budgets/

What you do not explain is what is driving the exchange rate issues especially when oil prices have been high for a while?

Again it is the government spending e.g on subsidy which again is funded by borrowing

Exchange rate does not fall for no reason
Summary a lot of the issues are down to government borrowing which has been a backdoor raid of citizens savings by depleting the value of the naira

Diesel, which powers most industry that produce and transport goods is not cheap about #1,000.00, only petrol appears cheap to the public but is costing the government a lot as subsidy and affecting our fx income, what CBN need to do are what is called unconventional monetary policy like fx intervention which sanusi did as CBN governor to keep fx at par with black market rate and low/ affordable. But we do not have enough FX income to defend the naira against the dollar which sanusi did during Obasanjo/johnathans time.

Acidosis:
It will curb inflation. People will be forced to invest their money and idle funds in bonds. treasury bills, fixed deposits, etc. since they're assured of getting 16.5% interest on the minimum. That means fewer money in circulation (supply). When money supply drops, of course, businesses will be forced to drop their prices. That is the positive side.

On the negative side, banks and other lending institutions would rather put their money in secured FG bonds with interest rates of 16.5% or higher than to lend it to business owners. This will cause a huge gap in productivity on the long run. If we fail to boost productivity along with these measures, the poor will become extremely poorer in 1-2 years. They will suffer massive consequences.

In addition, unemployment rate will increase and eventually worsen poverty in the country. Crime rate will also increase.

icancasestudy:
In addition, unemployment rate will increase and eventually worsen poverty in the country. Crime rate will also increase.

Right..

geeboy:
Diesel, which powers most industry that produce and transport goods is not cheap about #1,000.00, only petrol appears cheap to the public but is costing the government a lot as subsidy and affecting our fx income, what CBN need to do are what is called unconventional monetary policy like fx intervention which sanusi did as CBN governor to keep fx at par with black market rate and low/ affordable. But we do not have enough FX income to defend the naira against the dollar which sanusi did during Obasanjo/johnathans time.

The word CHEAP means relative to something else. Cheap is not an abstract thing . It must be in comparison

I think you are majoring in minors

Diesel whether it is cheap or not is not the summary of my post.
Nigerian Diesel is CHEAPER than that of most if not all our neighbours and one of the cheapest in the world

It is not clear that you understood my post
I responded to your claim that Inflation is driven by energy and exchange rates
That is not accurate. Everything is more expensive now and it is a Worldwide phenomenon.

The primary reason for inflation is an unprecedented supply of Naira and that is largely driven by the deficit budget of the Federal Government and an over obliging CBN which has effectively been printing Naira that is why we are now talking in TRILLIONS/ The GOVERNMENT DEVALUED THE NAIRA SILENTLY

You are proposing a solution without identifying the problem You say we need "unconventional" monetary policy like fx intervention . What does that mean exactly?

If you are referring to what Sanusi did i.e defending the Naira by selling dollars. Well that is not unconventional and that depends on having dollars to sell. Also there is nothing to say that it was desirable or that it achieved anything

Inflation has been high in Nigeria for the last 30 years and it is largely down to the fact that we produce next to nothing and import almost everything. Your proposed intervention won't fix that

Really

Nigeria economy is not overheating actually it needs massive investments and FDI's. Why is CBN slamming the brakes too hard. Higher interest rates always advantages savers at the expense of borrowers.

Why not wait to see the effect of Naira re design to curb inflationary pressures.

Tioo tight monetary policies would push the economy into recession

Acidosis:
They have to keep up with the trend, unfortunately. That's the only way to achieve the goal of the initial increase.

The fact you have stated it as the "only way" to achieve the goal of the initial increase, is what is disturbing... basically, they are out of ideas and are now deploying the last resort...

If a new good government does'nt come in ASAP, Naija is done for...

So why is Sterling Bank telling me it's 21% from 16.5%?
Thunder wey go fire them still dey do press up.

Acidosis:
It will curb inflation. People will be forced to invest their money and idle funds in bonds. treasury bills, fixed deposits, etc. since they're assured of getting 16.5% interest on the minimum. That means fewer money in circulation (supply). When money supply drops, of course, businesses will be forced to drop their prices. That is the positive side.

On the negative side, banks and other lending institutions would rather put their money in secured FG bonds with interest rates of 16.5% or higher than to lend it to business owners. This will cause a huge gap in productivity on the long run. If we fail to boost productivity along with these measures, the poor will become extremely poorer in 1-2 years. They will suffer massive consequences.

Bros All what you just explained is Economic jargons! At the end it will not favour Masses case closed.

Acidosis:
It will curb inflation. People will be forced to invest their money and idle funds in bonds. treasury bills, fixed deposits, etc. since they're assured of getting 16.5% interest on the minimum. That means fewer money in circulation (supply). When money supply drops, of course, businesses will be forced to drop their prices. That is the positive side.

On the negative side, banks and other lending institutions would rather put their money in secured FG bonds with interest rates of 16.5% or higher than to lend it to business owners. This will cause a huge gap in productivity on the long run. If we fail to boost productivity along with these measures, the poor will become extremely poorer in 1-2 years. They will suffer massive consequences.

Double digits ? It is bad .

DeOTR:
So why is Sterling Bank telling me it's 21% from 16.5%?
Thunder wey go fire them still dey do press up.

16.5 is the rate that the CBN lends to banks that is the lowest rate for banks and the likes of Dangote

MiaBeer:
Thanks. I have 5 mil naira. How do I go about with it and get returns? Buy land or put it in the bank?

Go into Cassava farming

ppogba:
With due respect sir, I will like you to answer the following:

* What has the consistent increase in MPR at least over the last 5 MPC yielded?
* What savings are you talking about sir.? Savings where 133 million people are categorised as poor?
* Savings where the disposable income is shrinking on a daily basis?
* How well has the inflation been positively impacted at least since the beginning of the year?
* How does increase in savings interest stimulate the economy?

Sir, I wait upon you.

If you read my comment again, i made emphasis on the short run.

The MPR is a monetary policy tool which is used my the monetary authority to control money supply in the economy, increasing the monetary policy rate mean that banks will have lesser money and that will contract the economy, it will be bad on the short run, but if sustained with other good polices, in the long run, inflation will reduce, the only problem is that loanable funds will also be scares, but of course since increase in MPR also make people save, banks can get deposit which they can give out as loans to help grow the economy.

On the aspect of what the previous increase has done to the economy, i have always been a critic to the present administation of CBN, just like i said, other policies too need to come up to help this one. The CBN has failed that direct banks to give more loans to key sectors that can bring economic growth.

Inflation can be reduced by using contractionary tools, but that is not enough, we should look at the other cause of inflation and deal with it, not only increase in money supply but we should also increase productivity, which the government is not doing. As inflation is mostly as a result of too much money chasing fewer goods.

Increase in saving interest sure stimulate an economy, just as i said before, one of the major problem of Nigeria economy is lack of investment, when individuals and firms save, there will be enough loanable fund for investors, this will bring about more production, reduce the cost of goods and create employment opportunity.

The only problem is that the fiscal institution and the monetary institution in Nigeria are never going to work hand in hand, which is that corruption.

To round up my answers to your question, the major reason economic polices don't work in Nigeria is simply corruption.

ppogba:
With due respect sir, I will like you to answer the following:

* What has the consistent increase in MPR at least over the last 5 MPC yielded?
* What savings are you talking about sir.? Savings where 133 million people are categorised as poor?
* Savings where the disposable income is shrinking on a daily basis?
* How well has the inflation been positively impacted at least since the beginning of the year?
* How does increase in savings interest stimulate the economy?

Sir, I wait upon you.

ppogba:
With due respect sir, I will like you to answer the following:

* What has the consistent increase in MPR at least over the last 5 MPC yielded?
* What savings are you talking about sir.? Savings where 133 million people are categorised as poor?
* Savings where the disposable income is shrinking on a daily basis?
* How well has the inflation been positively impacted at least since the beginning of the year?
* How does increase in savings interest stimulate the economy?

Sir, I wait upon you.

If you read my comment again, i made emphasis on the short run.

The MPR is a monetary policy tool which is used my the monetary authority to control money supply in the economy, increasing the monetary policy rate mean that banks will have lesser money and that will contract the economy, it will be bad on the short run, but if sustained with other good polices, in the long run, inflation will reduce, the only problem is that loanable funds will also be scares, but of course since increase in MPR also make people save, banks can get deposit which they can give out as loans to help grow the economy.

On the aspect of what the previous increase has done to the economy, i have always been a critic to the present administation of CBN, just like i said, other policies too need to come up to help this one. The CBN has failed that direct banks to give more loans to key sectors that can bring economic growth.

Inflation can be reduced by using contractionary tools, but that is not enough, we should look at the other cause of inflation and deal with it, not only increase in money supply but we should also increase productivity, which the government is not doing. As inflation is mostly as a result of too much money chasing fewer goods.

Increase in saving interest sure stimulate an economy, just as i said before, one of the major problem of Nigeria economy is lack of investment, when individuals and firms save, there will be enough loanable fund for investors, this will bring about more production, reduce the cost of goods and create employment opportunity.

The only problem is that the fiscal institution and the monetary institution in Nigeria are never going to work hand in hand, which is that corruption.

To round up my answers to your question, the major reason economic polices don't work in Nigeria is simply corruption.

Saintinoo:
If you read my comment again, i made emphasis on the short run.

The MPR is a monetary policy tool which is used my the monetary authority to control money supply in the economy, increasing the monetary policy rate mean that banks will have lesser money and that will contract the economy, it will be bad on the short run, but if sustained with other good polices, in the long run, inflation will reduce, the only problem is that loanable funds will also be scares, but of course since increase in MPR also make people save, banks can get deposit which they can give out as loans to help grow the economy.

On the aspect of what the previous increase has done to the economy, i have always been a critic to the present administation of CBN, just like i said, other policies too need to come up to help this one. The CBN has failed that direct banks to give more loans to key sectors that can bring economic growth.

Inflation can be reduced by using contractionary tools, but that is not enough, we should look at the other cause of inflation and deal with it, not only increase in money supply but we should also increase productivity, which the government is not doing. As inflation is mostly as a result of too much money chasing fewer goods.

Increase in saving interest sure stimulate an economy, just as i said before, one of the major problem of Nigeria economy is lack of investment, when individuals and firms save, there will be enough loanable fund for investors, this will bring about more production, reduce the cost of goods and create employment opportunity.

The only problem is that the fiscal institution and the monetary institution in Nigeria are never going to work hand in hand, which is that corruption.

To round up my answers to your question, the major reason economic polices don't work in Nigeria is simply corruption.

Well done. I agree with your analysis to a great extent.
More importantly, thank you for not insulting me bacause that is common on this platform.

omonnakoda:
This nonsense will only work in the classroom.

What was the interest rate before this latest increase? Why did that not persuade people to "save" .

Saving is not a good thing or a virtue neither is it a bad thing. It is amoral

Our economy is not overheating by any measure the simple truth is that government alone has nearly exhausted all the borrowing capacity in our economy

The banks do not lend to real business and do not seem to have any interest in doing so since government is so kind
but the capacity of government to borrow is not unlimited
Government has crowded real sector players out of the credit market.

The interest rate is a measure of risk and will not persuade anyone to save because the exchange rate risk remains just as the risk of government default on loan repayments

No sir, saving is not bad, you are looking at it from the micro level. CBN sees it from the Macro level.

When individuals and cooperate bodies safe, there will be availability of loanable funds for investment, this will increase productivity and employment and also reduce cost of goods, thereby reducing inflation in the long run.

Saintinoo:
No sir, saving is not bad, you are looking at it from the micro level. CBN sees it from the Macro level.

When individuals and cooperate bodies safe, there will be availability of loanable funds for investment, this will increase productivity and employment and also reduce cost of goods, thereby reducing inflation in the long run.

Did I say saving is bad? Do you understand English?

ppogba:
Well done. I agree with your analysis to a great extent.
More importantly, thank you for not insulting me bacause that is common on this platform.

The problem is that there are so many kids under 20 on this platform.

omonnakoda:
16.5 is the rate that the CBN lends to banks that is the lowest rate for banks and the likes of Dangote

They're actually trying to make me believe CBN rate is now 21%. This was after I was informed it rose to 16.5% earlier in August this year.

DeOTR:
They're actually trying to make me believe CBN rate is now 21%. This was after I was informed it rose to 16.5% earlier in August this year.

Who?

omonnakoda:
Who?

Sterling Bank.