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> We have inflation at 17% but CBN ordered banks to fix interest rate at around 1% I would‘ve thought it’s prudent to keep interest low in such a scenario, bec
by manmal 6y ago
> We have inflation at 17% but CBN ordered banks to fix interest rate at around 1%
I would‘ve thought it’s prudent to keep interest low in such a scenario, because it stimulates investments.
- notahacker 6y agoLow interest rates also make borrowing money cheap, which means people borrow money from banks, which increases the money supply (as well as the rate at which it's being turned over). This effect dominates any long term production increase which certain types of investment might facilitate. Raising interest rates when inflation is high is Central Banking 101
- ejanus 6y agoSure, CBN 101. But investment 101 is different,you try to beat inflation. Here, inflation destroys your currency value. Note that inflation in Nigeria is driven by foreign currency exchange rates and not interest rates.