![]() This will have a significant impact on consumer spending. ![]() Related to the first point is the fact that interest payments on variable mortgages will increase. Increase in mortgage interest payments.Therefore other areas of consumption will fall. People who already have loans will have less disposable income because they spend more on interest payments. Therefore this discourages people from borrowing and spending. With higher interest rates, interest payments on credit cards and loans are more expensive. Higher interest rates have various economic effects: Effect of higher interest rates Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate. Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. Higher interest rates tend to moderate economic growth. The Central Bank usually increase interest rates when inflation is predicted to rise above their inflation target.
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