What if the CBN Reduces Interest Rate?
The governor of the Central Bank of Nigeria (CBN) recently announced an increase in the Monetary Policy Rate (MPR) to 22.75% from 18.75%. The goal according to members of the committee is to stem the increasing inflation rate that currently stands at 29.9%. This move aims to reduce the amount of money in circulation, which is often attributed to inflation. By increasing the interest rate, depositors are encouraged to put (save) their money in the bank for higher returns. On the other hand, borrowers have to pay more to get loans. Basically, this kills two birds with one stone while addressing one problem - inflation. It is worth noting that inflation is defined as "a general increase in prices and fall in the purchasing value of money." You also want to know that inflation can be either cost-push or demand-pull. Demand-pull stems from increase in demand from consumers, usually due to more money in circulation/increased purchasing power, which leads to suppliers in...
