A vicious cycle

1.Cost of lending up
2.Inflation up
3.Businesses may close -reduced tax revenue
4.Unemployment up
5.industrial strikes to for wage increases
6.Shilling to lose further


Impact on other variables

The traditional effects on an increase of interest rates are, among others, the following:
1. a fall in stock exchange and in the value of other assets (as houses);
2. a fall in profitability of firms;
3. a fall in private investment;
4. a fall in consumption credit;
5. an inflow of foreign capital for buying bonds;
6. an upward pressure on exchange rate;
7. a larger public expenditure to pay for a previously cumulated public debt, whose burden might lead to reduction in other chapters in public expenditure;
8. a narrower disposable income for households having a large debt taken at variable rates;
9. a larger disposable income for households that have lent to others at variable rates (e.g. they own government bonds with variable rates);
10. a redistribution of income from debtors to lenders (in the part of debt that has variable rates).

http://www.economicswebi...g/glossary/interest.htm

I can only see recession and loan defaults...guess December is a good time to lay off some workers

Infact the vice versa is likely .They will put more into the risk free government bonds as the government will be paying more interest.
How will banks lend more yet defaults are likely ?

@user, I agree with your first set of 1-6.

Bank lending rates will up, resulting in default rates upping, cost of business will rise as firms pass on the extra finanxcing ost to consumers, reduced profitability - affecting profitability and overall tax collection. Redundancies thus likely. And at the far end of the spectrum, socio-political unrest as people cant afford food.
Iko shida kubwa sana kweney siku za usoni.

Is this the price we have to pay to shore up the shilling vis-a-vis the greenback?

guess so, the economy will crush and demand for imports will drop, alternatively...rates may rise high enough to attract some portfolio flows, then again Uganda is at 25% on onite