How Are Central Banks Able to Change Interest Rates? The simple answer is that central banks are able to change interest rates because they’re in charge of monetary policy. But what does that mean, exactly? Basically, a central bank is a central authority for money supply and interest rates.
How Do Markets React When Central Banks Raise Their Rates? When interest rates rise, debt becomes more expensive and borrowing decreases. That can lead to slower economic growth, which in turn lowers inflation. As a result, central banks raise interest rates to slow down economic activity and tame inflation.
Why Would a Central Bank Want to Raise Their Rate? Central banks will raise their interest rates for one reason, and one reason only: Inflation. They have a target inflation rate that they are trying to maintain in their country and raising interest rates is a way to curb inflation from getting out of control. The number that is targeted by central banks varies based on each country’s economic outlook. The Future The central bank has announced that it will be hiking interest rates for the first time in nearly five years. According to an official statement, There is considerable monetary policy stimulus currently in place, which is still supporting economic activity. At present, there is considerable monetary policy stimulus currently in place, which is still supporting economic activity... All things considered, such an increase would be expected to be appropriately timed.
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