Interest Rate Raise vs Economic Recovery

Finance and Investing


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Finance and Investing > Best Practices

Adam Sheikh
The Reserve Bank of Australia raised the cash rate by 25 bases point to 3.25%. Reason: the global economy is resuming growth. How far can a rise in interest rate contribute to the envisaged world economic growth? (...) Read more? Sign up for free

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  venkataramanan, Financial Consultant, United States

Conequences of an Interest Rate Raise / Cut on Economic Growth

An increase in interest leads to mobilization of savings i.e. capital formation.
While if this money would have been invested, an increase in production is achieved > 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

I agree a raise of the interest rate normally has a NEGATIVE effect on the economy resuming growth. Because it makes it relatively more interesting for those who have money to put it on some savings account (bank) instead of investing it (in shares/stock, which then allows companies to invest and grow, which then stimulates the economy). And indeed @Onyango Lucius is right that even certain investors may anticipate further future interest rates 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 wil (...)

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