CBN has just raised her interest rate Radio Apprentice
Godwin Emefiele has just an announced an increase in interest rate by the Central bank of Nigeria. What does this mean?
The interest rate is the rate at which banks can borrow money from the central bank. The central bank uses the interest rate to influence the money supply and the inflation rate in the economy. When the central bank raises its interest rate, it makes borrowing more expensive and saving more attractive. This reduces the demand for money and credit, and slows down economic activity. A higher interest rate also attracts foreign investors, who buy the domestic currency and increase its value. This makes exports more expensive and imports cheaper, and reduces the trade balance. Therefore, when the central bank raises its interest rate, it tends to lower inflation, but also lower growth and employment.