If a rate cut is implemented, it makes borrowing cheaper for individuals and businesses. This encourages them to take out loans to finance their expenses or invest in projects, which in turn increases spending in the economy. This rise in spending stimulates economic growth and can lead to increased employment opportunities. A suitable rate for a stable economy is 1%-5% and 7% affects the economy it is above normal which is 5% causing inflation

Additionally, a rate cut can also lead to a decrease in interest income for savers. With lower returns on savings accounts and fixed-income investments, individuals may be more inclined to spend their money rather than save it. This further boosts consumer spending, which contributes to economic expansion.

On the other hand, when rates are hiked , borrowing becomes more expensive, which can discourage individuals and businesses from taking on new debt or making large purchases. This reduction in borrowing and spending can help to slow down the economy and reduce the risk of inflation.

When interest rates are high, saving becomes more attractive as individuals can earn higher returns on their investments. As more people choose to save rather than spend, there is less demand for goods and services in the economy, which can lead to a decrease in inflationary pressures.

Rate cuts increase spending and reduce inflation because they make borrowing cheaper and encourage consumption. Conversely, rate increases reduce spending and inflation by making borrowing more expensive and promoting saving.


In a surprising move on July 25th, 2023, the Central Bank of Nigeria (CBN) decided to raise its benchmark interest rate by 25 basis points (bps) to 18.75%. This decision comes as a slight deviation from market expectations, as analysts had predicted a higher increase. This move represents the fourth consecutive interest rate hike this year, resulting in the highest borrowing costs since the adoption of the monetary policy rate in 2006.

The decision to raise interest rates comes at a critical juncture for Nigeria's economic landscape. It coincides with the recent suspension of Central Bank Governor Godwin Emefiele by newly elected President Bola Tinubu. Emefiele had adopted unorthodox policies aimed at maintaining an artificially strong currency and providing direct lending to businesses in an attempt to stimulate economic growth.

The Nigerian economy has been grappling with a persistent upward trend in headline inflation, which reached 22.79% in June 2023. This represents the sixth consecutive month of inflationary acceleration and marks the highest level since September 2005, when inflation stood at a similar rate of 22.41%.

In light of these economic challenges, the CBN's decision to raise interest rates comes as an attempt to curb inflationary pressures and stabilize the currency. By increasing borrowing costs, the central bank hopes to reduce consumer spending and investment, which can lead to lower demand, thereby mitigating inflationary pressures.

The CBN's action indicates a shift away from the unconventional policies implemented by Emefiele. The new administration under President Tinubu is likely seeking a more orthodox approach to monetary policy, focusing on economic stability and the overall health of the Nigerian economy.

It remains to be seen how these developments will impact Nigeria's economic trajectory. The decision to raise interest rates, coupled with the suspension of the central bank governor, marks a significant shift in policy direction. Observers will closely monitor future monetary policy decisions and their impact on inflation and economic growth in the coming months.

Source: CBN (Money Market Indicators)

This government is swimming against the economic tide.

If CBN is increasing interest rate, what incentive are they giving to industralist to do business,no wonder they are closing shops in droves.

Tinubu has virtually ground the nations economy to a halt by his anti people policies

Industrialists are groaning under the heavyweight if multiple taxes coupled with lack of forex to do business,not to mention the burden of fuel subsidy removal that has stimulated cost push inflation

Insecurity is another salient matter

coputa:
This government is swimming against the economic tide and prosperity.

If CBN is increasing interest rate, what incentive are they giving to industralist to do business,no wonder they are closing shops in droves.

Tinubu has virtually ground the nations economy to a halt by his anti people policies

Industrialists are groaning under the heavyweight if multiple taxes coupled with lack of forex to do business,not to mention the burden of fuel subsidy removal that has stimulated cost push inflation

Insecurity is another salient matter

True there is insufficient forex to do business in Nigeria . Cash inflow is now restricted due to cashless policy . The country is getting poorer than other African nation . It is noted that more than 63% of persons living within Nigeria are indigent .The only solution is to improve on offering incentives to foreign or local investors improving Security, infrastructure, ensuring political stability and providing a favorable business climate. Encourage local businesses to increase exports by providing incentives such as tax breaks, subsidies, or access to foreign markets. This can lead to an inflow of foreign currency.

The submission of AI here assumes people are rich enough to save when interest rates are hiked.
Nigerians spend 60% of income on food and have little or no disposable income after shelter, transport, and other bills are settled.

Even the rich don't always react to interest rate changes as summarized by AI here. You give them tax cut thinking they will embrace production, they can decide their profit has increased and reduce or maintain production level.
Economics is interwinwe with human behavioural pattern and isn't electrical engr or mathematics with more predictable patterns.

RepoMan007:
The submission of AI here assumes people are rich enough to save when interest rates are hiked.
Nigerians spend 60% of income on food and have little or no disposable income after shelter, transport, and other bills are settled.

Even the rich don't always react to interest rate changes as summarized by AI here. You give them tax cut thinking they will embrace production, they can decide their profit has increased and reduce or maintain production level.
Economics is interwinwe with human behavioural pattern and isn't electrical engr or mathematics with more predictable patterns.

The government's fiscal policy plays a significant role in shaping the economy. However, it is important to note that the impact of government policies on inflation and the cost of products and services can vary and may not be solely driven by the actions of the rich industrialists.

While it is true that certain policies may have unintended consequences such as price inflation, it is essential to consider various factors that contribute to the cost of operation for businesses, including startups. Besides government policies, other factors like market competition, supply and demand dynamics, labor costs, and technological advancements can also significantly influence the cost structure of businesses.

Regarding the news regarding Shell potentially selling its Nigeria onshore oil business for $2.4 billion, this is a significant development in the oil industry. However, it is crucial to understand that specific business decisions and transactions involving major companies like Shell are influenced by a multitude of factors, including market conditions, strategic considerations, and changing dynamics in the energy sector. The impact of this sale on the overall economy would depend on how it is executed and the subsequent actions taken by the parties involved.

It is unfortunate to hear that your startup failed due to high operational costs. While high costs can indeed be challenging for startups, it is important to analyze the specific factors that contributed to the failure and explore alternative strategies and solutions. Factors such as market positioning, competitive advantage, operational efficiency, and financial management play significant roles in determining the success of startups, along with the broader economic conditions and government policies.