Definition of interest rate

The concept of rate Interest is directly related to the value of money. In this sense, it is the amount or amount of money that is related to an economic operation. Thus, if someone deposits an amount x in a Bank, the interest rate is the percentage of money that you receive in return and if someone requests a loan to buy something, it refers to the amount that the debtor must pay to the bank.

An individual, a company or a government They may need money and for this they request a loan, which is subject to a certain interest, which is the cost that must be paid to receive the requested money (the cost of money is precisely the rate of interest).

Interest rates affect the economy as a whole

The decision raising or lowering interest rates is normally adopted by the central banks of each country. Central banks determine a specific rate for lending money to different national banks and, in turn, Consequently, the less national banks pay for the money they request, the lower the amount they charge to Your clients. Obviously, this circumstance has effects on the entire

economy (the use of credit cards, mortgages or the request for credits to purchase goods, among other financial circumstances).

As a general guideline, when interest rates are low there are usually two consequences: Stock prices rise and prices in the equity sector. building they also increase. On the other hand, the fall in interest rates is associated with the devaluation of some currencies, especially the dollar.

Why are interest rates falling?

Economists consider that in the economy as a whole there is a decrease in interest rates for two fundamental reasons:

1) because the price levels, the inflation, tend downward and

2) because there is a generalized economic slowdown and, as a consequence, it seeks to stimulate the economy by reducing interest rates.

Conversely, when there is an economic boom, central banks raise the price of money to cushion said growth.

Interest rates can also be negative

Let's imagine that a citizen You deposit your money in a bank and the bank not only does not pay you any interest for it in return, but the citizen is the one who has to pay a fee for depositing your money. This simple example illustrates the concept of negative interest rate, a circumstance that is beginning to occur in some countries to discourage saving and promote investment and investment. consumption.

Photos: Fotolia - wittaya / jaaakworks

Interest Rate Topics