It makes borrowing costs more expensive and encourages saving, which reduces the amount of money sloshing around in an economy. Less money supply and reduced demand typically means disinflation so raising rates is the go to move for central banks. Lowering interest rates tends to have the opposite effect and heat up an economy, potentially fueling more inflation.
How does raising Interest rates like that combat inflation. I know we’re doing here in the US too. Anyone have insight they can add?
It makes borrowing costs more expensive and encourages saving, which reduces the amount of money sloshing around in an economy. Less money supply and reduced demand typically means disinflation so raising rates is the go to move for central banks. Lowering interest rates tends to have the opposite effect and heat up an economy, potentially fueling more inflation.
Economics is wild. Thanks for the explanation!
It encourages people to save money instead of spend it.