Factors Affecting Interest Rate Change- An interest rate is a cost of borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money. In both cases it keeps the economy moving by encouraging people to borrow, to lend, and to spend. But prevailing interest rates are always changing, and different types of loans offer different interest rates. If you are a lender, a borrower, or both, it’s important you understand the reasons for these changes and differences. They also have a heavy effect on the rare metals trade, including silver stocks.
Interest rate levels are a factor of the supply and demand of credit: an increase in the demand for money or credit will raise interest rates, while a decrease in the demand for credit will decrease them. Conversely, an increase in the supply of credit will reduce interest rates while a decrease in the supply of credit will increase them.
Various economic forces affect the level and direction of interest rates in the economy. Inflation is one of the most influential forces on interest rates.
Interest rates usually climb when the economy is growing, and fall during economic downturns.
- Rising inflation leads to rising interest rates
- Moderate inflation leads to lower interest rates
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