Interest rates determine the amount of interest payments that savers will receive on their deposits. An increase in interest rates will make saving more attractive and should encourage saving. A cut in interest rates will reduce the rewards of saving and will tend to discourage saving. However, in the real world, it is more complicated. …
Readers Question: Interest Rates are increased by the governments to bring down inflation rates, this makes exports price competitive as well, as a result, exports increase. However, an increase in interest rates can lead to an appreciation of the currency as demand for the currency increases. So this again increases the price of exports as …
Readers Question: Hello can you please tell me what the disadvantages of using interest rates would be for the economy? Interest rates are used to try and achieve low inflation and stable, sustainable economic growth. However, interest rates are limited, they can’t always achieve all the governments’ macroeconomic objectives at once. Interest Rates and Inflation …
Under certain circumstances, the government might want to intervene in the foreign exchange markets to influence the level of the exchange rate. Methods to Influence the Exchange Rate Reserves and Borrowing. If the value of an exchange rate is falling and the government wants to maintain its original value it can use its foreign exchange …
Interest rates have been cut to a record low of 0.25% – essentially due to grim economic news from the short-run demand side shock of Brexit. Economic theory states that in normal circumstances, lower interest rates should boost aggregate demand (AD). To give a quick recap, lower interest rates should in theory: Reduce the incentive …
Bank of England base interest rates are currently 0.5%. Economists are divided about when interest rates will rise. Some point to the evidence of a strong economic recovery to suggest interest rates could rise by mid 2015. Others argue that the strong global deflationary pressures mean that UK inflation is likely to stay very low …
Readers Question: Is it possible to have negative interest rates? Negative interest rates occur when a bank charges you money for the privilege of looking after your savings. It is possible to have a negative interest rate (e.g. -0.5%) Although it is quite rare. The Bank of England have recently talked about the possibility of …
The Bank of England has the task of setting base interest rates to try and meet the government’s inflation target of 2%. The base rate is the rate at which the commercial banks have to borrow from the Bank of England. The Bank manages the money supply so that commercial banks usually end up having …