Monday, October 2, 2023

The relationship between inflation and interest rates

Loss interest rates is an important tool for regulating the economy, and it affects both consumers and companies. Therefore, it is important to consider nominal and real rates, and understand how it affects inflation and the supply of credit. In this article we will tell you. Don’t miss it!

What are the interest rates?

interest rates is the price paid for the use of money borrowed or deposited by a financial institution. It is a measure that shows the cost or profit of an investment or loan, and is usually expressed in annual percentages.

It should be noted that interest rates It can be nominal or real. The nominal rate is the interest rate that does not take inflation into account, while the real rate takes inflation into account, and reflects the purchasing power of money. For example, if the nominal interest rate is 5% and inflation is 2%, the real interest rate will be 3%.

Why are interest rates different?

interest rates different for different reasons including inflation, economic growth, credit supply and demand, and the monetary policy of central banks.

Inflation is one of the most important factors affecting interest rates. So, When inflation is high, central banks may raise interest rates to prevent overspending and control inflation.. If, on the other hand, inflation is low, they can reduce interest rates to stimulate investment and consumption.

economic growth It can also influence interest rates. If the economy is growing rapidly, there may be greater demand for credit, which may lead to higher interest rates. However, when the economy is in recession, there may be lower demand for credit, which may lead to lower interest rates.

The supply and demand of credit They also interfere with interest rates. If there is a greater supply of credit available, interest rates will be lower. On the other hand, if the supply of credit is scarce, the interest rate may be higher.

Finally, Monetary policy of central banks is an important tool to influence interest rates. Central banks can raise or lower interest rates to control inflation, stimulate the economy, or stabilize financial markets.

⮞ The role of the ECB

The European Central Bank (ECB) is one of the main financial institutions of the European Union (EU) and its main purpose. maintaining price stability in the euro zone.

The ECB has a number of tools at its disposal to achieve this objective, including those mentioned above monetary politics, which includes setting interest rates. With its rise or fall can control inflation and stimulate the economy.

In addition to setting interest rates, the ECB also has other tools at its disposal, such as the purchase of bonds and other financial assets.

The role of the ECB is fundamental for the economy of the euro zone, because its ability to maintain price stability and stimulate economic growth is the key to the well-being of the citizens of the European Union. Thus, This has a major impact on the EU economy and financial markets around the world.

⮞ How interest rates affect inflation

Interest rates have a significant impact on inflation, because, as we have commented, They are one of the main instruments used by central banks to control inflation.

When the Central Bank increases the interest this will reduce consumer and business spending, which can slowing the economy and reducing inflation. This is because loans become more expensive, and people and businesses can reduce their expenses to pay higher interest rates.

On the other hand, if the the interest rate is low se stimulate the economy, because loans are cheaper, and people and businesses can get more loans to spend on goods and services. However, it can also be increasing inflation because the increase in demand creates inflationary pressure.

Besides, Changes in interest rates can also have an impact on the value of the local currency. When interest rates rise in a country, foreign investors are more likely to invest in that country, which increases demand for the local currency, and can increase its value. This could have the effect of reducing exports, which would also reduce inflation.

Access to money through bank credit

If you are a client of any of the entities of Grupo Caja Rural and you meet certain conditions you can request the loan which suits you best. In an easy and simple way, your dreams can come true: buy a new car, change the windows of the house, or study the latest master’s degree in artificial intelligence.

Do you want to start simulating the loan that interests you the most? They also put together a loan simulator that you can use. This is an online tool that help you choose the best option for you, according to the amount of money you need, and your payment possibilities.

If you need a mortgage loan, we recommend that you use our mortgage simulator to check all available options.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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