How can increase in lending interest rates by banks contain inflation? - lending rates
How can the interest rates on loans to banks to curb inflation?
Saturday, January 9, 2010
Lending Rates How Can Increase In Lending Interest Rates By Banks Contain Inflation?
4 comments:
The simplest version is that people will have more on loans (mortgages and credit cards, pay, etc.), so that they spend less money in their pockets.
Because people are not as strong pspending price may be increased by the companies.
Suppose you have a fixed monthly income. The rise in mortgage repayments and find discount rates because the rate of mortgage refers to the bank.
Now you have less money to spend each month for other things. Some things are just the purchase, but others are discretionary, for example, you can eat less, drive less, go to the movies less often, drink soft drinks instead of alcohol, except for clothing, etc., etc. There are several ways to to reduce your costs.
If everyone does the same, reduces the demand on the street. Because people spend less in shops, retailers are trying to keep their prices to maintain sales, make deals, etc. Remember, they are in competition with each other. As the prices are kept low to keep inflation under control.
There are many other purposes, for example, we did not examine the impact on investors and manufacturers. There is also the prices of which we have no control, for example, imports including food and oil. But the basic idea is that higher interest rates means thatand help less money into the system and thus less demand for goods and services to keep prices down.
But interest rates too much press to the country into a recession, it is a delicate balance. The recession means that companies will disintegrate and the people are unemployed, it is usually not a good thing.
If the loan is to increase interest rates to be fewer people borrow money.
This means that the country will be less than the debt, and the prices settle down and stop the inflation, because there is more movement of money.
They take your money before you can spend on goods, reducing the demand so that prices remain low.
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