The Central Bank Monetary Policy Committee on Tuesday announced an increase in the Monetary Policy Rate from 12 per cent to 14 per cent.
This development will no doubt have its effects on Nigerians. Here are five key areas the policy will affect Nigerians:
1. The cost of capital will increase and more people will be less interested in taking loans from the banks
2. This subsequently will encourage savings
3. The few that take loans will reflect the interest rate in their selling prices as it will affect their overall cost of production.
4. It will improve the liquidity of the foreign exchange market, i.e there will be much cash in circulation at the stock market to pave way for a stronger Naira thereby reducing the pressure on the currency.
5. Improved liquidity will at the end of the day lead to increased prices of basic items and in the long run inflation
6. It will lead to decrease in economic growth. When the interest rate is high, and thus borrowing rates is difficult, many firms find it difficult to finance big projects or expand their businesses, and this thus makes economic growth stagnant
7. Lenders would benefit more. People who lend out money would benefit strongly because since interest rates are high, It means extra money to them – when companies are restricted from borrowing, It has the ability to make them cut back on expenses, and this could mean cutting labour costs and thus causing unemployment.
