What Affects the Interest Rate
Posted: Wed Feb 19, 2025 4:14 am
Let's follow the chain of factors that determine the profitability of a specific investment. Let's start with the most general indicators.
National Economy
Profitability depends primarily on the general economic situation in the country, which can also be affected by the global economy. For example, a collapse of the US stock exchange can have a catastrophic impact on the entire planet.
When the economy grows, large enterprises and small businesses need capital to grow. They look for investors or take out loans. Banks need to attract more depositors. The easiest way to do this is to increase interest charges.
During a recession, demand for credit falls. Businesses are russia mobile database more concerned with survival than with expansion. Consumer loans also tend to fall. People are less willing to buy goods that can be secured with a loan. Banks have to worry more about finding borrowers than depositors. Interest rates begin to fall.
One of the characteristics of economic growth is the rapid movement of cash flows. In a recession, they slow down. The slower the money moves, the lower the interest rate on deposits. But this principle is not so clear-cut.
Other macroeconomic factors include the following:
inflation rate;
stability of the national currency;
economic development prospects.
Inflation directly affects interest rates. A yield below the inflation rate is unprofitable. Therefore, the yield will always tend to outpace the depreciation of the currency. The current inflation rate allows you to plan and build expectations for the economy.
The highest level of profitability can be observed during periods of the most severe economic upheavals. Growing inflation and negative expectations generate high interest rates. In an attempt to attract customers, banks have to offer generous terms.
State policy and the key rate
Full state regulation of the economy is a thing of the past. The state cannot issue laws that directly establish the interest rate policy of credit institutions. On the other hand, the Central Bank and the government can seriously influence the size of incomes with the help of other factors.
National Economy
Profitability depends primarily on the general economic situation in the country, which can also be affected by the global economy. For example, a collapse of the US stock exchange can have a catastrophic impact on the entire planet.
When the economy grows, large enterprises and small businesses need capital to grow. They look for investors or take out loans. Banks need to attract more depositors. The easiest way to do this is to increase interest charges.
During a recession, demand for credit falls. Businesses are russia mobile database more concerned with survival than with expansion. Consumer loans also tend to fall. People are less willing to buy goods that can be secured with a loan. Banks have to worry more about finding borrowers than depositors. Interest rates begin to fall.
One of the characteristics of economic growth is the rapid movement of cash flows. In a recession, they slow down. The slower the money moves, the lower the interest rate on deposits. But this principle is not so clear-cut.
Other macroeconomic factors include the following:
inflation rate;
stability of the national currency;
economic development prospects.
Inflation directly affects interest rates. A yield below the inflation rate is unprofitable. Therefore, the yield will always tend to outpace the depreciation of the currency. The current inflation rate allows you to plan and build expectations for the economy.
The highest level of profitability can be observed during periods of the most severe economic upheavals. Growing inflation and negative expectations generate high interest rates. In an attempt to attract customers, banks have to offer generous terms.
State policy and the key rate
Full state regulation of the economy is a thing of the past. The state cannot issue laws that directly establish the interest rate policy of credit institutions. On the other hand, the Central Bank and the government can seriously influence the size of incomes with the help of other factors.