Interest Rates Are Rising - Here’s What That Means for You

Higher interest rates lead to increased costs, be it for individuals or businesses. Once central banks increase their rates, it becomes increasingly difficult to access money through borrowing. This is so due to the fact that such loans, for instance mortgage loans or car loans, become costlier to service. Consequently, disposable incomes may decrease leading to reduced consumer spending whilst businesses may not take up loans for expansion or embark on any new undertakings. Even though these measures may assist in stabilizing prices and curbing inflation, they tend to hamper economic growth.

With respect to businesses, elevated levels of interest rates are synonymous with incurring high costs on loans and this poses a hindrance for growth and recruitment of new staff. Many small companies, especially, will struggle with the operational costs which they will have to raise capital from outside sources. Engaging this scenario, however, means lower employment seeking hire and slower expansion of businesses, thus resulting in a negative effect in the labour market.

Increasing Interest Rates can also have potential ramifications for other countries. For instance, a country that has incurred significant debts may even find it challenging to pay off the debts owed especially if interest rates in other countries are high. This may result in such countries incurring losses and even worse such countries may experience depreciation of their national currencies. The not only people and businesses are impacted with increased interest rates but every other economy around the globe is.

It is true that higher interest rates should be implemented to check inflation but there should be moderation. There are extremely high chances that economic growth may be skewed and a lot of stress placed on individuals and businesses if the rates escalate very fast or to very high levels. There is always a fight back or an attempt enrich to inflation a new trend which wiggles the central banks who war to fight inflation.