Effect of Interest Rate Raise on Economic Growth

Finance and Investing

Forum
Adam Sheikh, Kenya

Effect of Interest Rate Raise on Economic Growth

How far can a increase/decrease in interest rate contribute to the global economic growth?

  venkataramanan
Financial Consultant, United States
 

Consequences of an Interest Rate Raise / Cut on Economic Growth

An increase in interest leads to an increase / mobilization of savings( i.e., capital formation).
If interest rates are not so attractive, more money will be invested, resulting in an increase in production → more goods → more employment → economic growth.

  Onyango Lucius
Events Marketer, Uganda
 

Effects of Interest Rate Raise on Economy

The problem with raising the interest rate is that the economy will hold on to their money instead of investing it.
Investors may even wait for another raise in the interest rate which might take a long period. This will affect the economic growth negatively.

  Jaap de Jonge
Editor, Netherlands
 

Effect of Interest Rate Raise on Economic Recovery/Growth

I agree a raise of the interest rate normally has a negative effect on the economy, slowing down growth. Because it makes it relatively more interesting for people who have money to put it on some savings account (bank) instead of investing it (in shares/stock). Investments in shares then allow companies to invest and grow, which then stimulates the economy.
@Onyango Lucius I agree that certain investors may even anticipate further future interest rates increases, so they would keep their money at hand in case that happens.

  sanjeeb mohanty
Student (MBA), India
 

Relation Between Interest Rate and Economic Growth

When there is an interest rate increase, there will also be a consequential rise in the prime lending rate for banks (to...

 

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