"CBN raises interest rate to 18.5 % on stubborn inflation, slowing growth"

The Central Bank of Nigeria (CBN) on Wednesday after the two-day last Monetary Policy Committee (MPC) meeting, under President Muhammadu Buhari’s administration raised its benchmark interest rate known as the Monetary Policy Rate (MPR), by 50 basis point to 18.5 the seventh straight time in one year. Business day

WHAT HAPPENS AFTER?

When a central bank raises interest rates, it means that the central bank is increasing the cost of borrowing money for commercial banks and, indirectly, for individuals and businesses. The interest rate set by the central bank is often referred to as the "policy rate" or "benchmark rate." This rate serves as a guide for other interest rates in the economy.

Here are some key implications of a central bank raising interest rates:

Controlling inflation: One of the primary reasons for raising interest rates is to curb inflation. By increasing the cost of borrowing, the central bank aims to reduce spending and investment, which can help cool down an overheating economy and lower inflationary pressures.

Managing economic growth: Raising interest rates can also be used as a tool to moderate economic growth. When an economy is expanding rapidly, the central bank may choose to increase interest rates to prevent excessive borrowing, which could lead to asset bubbles or unsustainable levels of debt.

Currency appreciation: Higher interest rates can attract foreign investors seeking higher returns on their investments. This increased demand for the domestic currency can lead to an appreciation in its value relative to other currencies.

Discouraging borrowing and spending: When interest rates rise, the cost of borrowing becomes more expensive. This discourages individuals and businesses from taking on new debt, which can lead to reduced consumer spending and investment.

Impact on savings and investments: Rising interest rates can be beneficial for savers as they can earn higher returns on their savings accounts and fixed-income investments. However, it may make borrowing for investment purposes more costly, potentially impacting businesses' expansion plans.

Financial market effects: Changes in interest rates can have a significant impact on financial markets. Higher interest rates can make bonds and other fixed-income investments more attractive relative to stocks, potentially leading to a shift in investor preferences and impacting asset prices.

REMARK: It's important to note that the specific implications of a central bank's interest rate decision can vary depending on the broader economic conditions and the goals of the central bank.

Host: CS Nwilliams / Radio Apprentice

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