CBN resets to 23%, what happens to your cash, bonds, loans and shares?

So let me give you a broad understanding of how the economy works.

When the economy is pulsating and the economy is doing very, very well, there's a lot of economic activity happening.

There are jobs created.

There's a lot of spending.

The central bank watches that activity and the central bank's job is to fight inflation.

So the central bank knows that if the economy is doing very, very well, this is the irony, if the economy is doing very, very well, there's a chance of inflation.

So what does the central banks do? This is not central banks of all nations.

What do they do? They raise interest rates.

When they raise interest rates, they make the cost of borrowing go up.

If the cost of borrowing goes up, it reduces economic activity.

Yes, you want growth, but you don't want the velocity or the speed of that growth to just be so quick.

there's inflation and the economy then goes into becomes overheated so the central bank is like the adult in the room that will raise interest rates when it feels that the economy is moving too fast right and the reverse is also true when the central bank looks at the economy there's a recession nobody's spending there's unemployment things are not going too well what does central bank of night do it reduces interest rates to make the cost of borrowing fall So that way companies are able to get access to loans cheaper and are then able to create jobs, create output and get the economy reflated.

So it's always that opposite to the central bank.

If the economy is doing well, the central bank will raise the rate.

If the economy is not doing well, the central bank will reduce the rate.

so right now you see the nigerian central bank has reduced rates by massively like 23 let's go to that slide and what they've done there's been a massive fall in rate it's so massive that the central bank governor is calling it not a rate cut but a reset so we've gone from 26.5 which is the monetary policy rate how this works is this because the banks have what we call the rediscount rate.

If a bank wants money, it can borrow from other banks.

It can also go to the Central Bank of Nigeria to borrow.

If the Central Bank of Nigeria says, we are going to borrow or lend to you at 26.5%, that means that the bank cannot lend to you less than 26.5%.

You see how that happens? So that means if the Central Bank wants to make rates go up, it would raise rates.

Then all the banks would have to raise rates as well, right? And the central bank wants rates to go down.

It takes rates down.

All the banks sort of have to follow the central bank.

It's not a law, but it doesn't make any sense to lend to your customers below what you're getting from the central bank.

So let's look at what's happening in Nigeria right now.