Acknowledge how the foundation of the financial system, which is interest rates, is the main reason that institutions and consumers behavior is influenced by their decisions. On the contrary, people need to plan a bit with lower interests while saving, borrowing, or investing and hence making good use of them by handling them properly when they make financial decisions.
A very simple explanation is, interest rate is the fee for the borrowed money or it is the reward that you received for the investment of the capital. The central banks and the monetary authorities determine the interest rates i.e. they put them either up or slightly down for the purpose of accelerating or de-accelerating the economic development with the aim of inflation and employment being set at a certain level.
Rates on loans, credit cards and auto finance are the answers to the consumer’s queries on what is the most profitable mortgage rates, loans to a car or a credit card. Low rates as a kind of stimulus make people want to borrow and spend or invest mone, so they save less and are ready to borrow much more, which, in fact, is meant to limit inflation.
A person who chooses to save or invest in cash account will now have a choice to put his or her money in other places according to the interest he or she receives. Although it is true that such low rates are likely to end up with higher inflation, they are also instrumental tools that promote movement of the capital markets from low returns in the saving and bonds to property and stock prices which consequently requires investors to amend their portfolios. But at the same time downward movement in interest rates may make a bond investment a better option and a consequent effect will be a stabilization of the stock market.
The way of interest rates’ movement depicts how the monetary and financial conditions are changing in the world and how these tendencies are affecting economies and regimes. The level of inflation, interest rates as well as policies of the central banks determine the prediction of the investors on yield curves and the actual yield curves.
As a whole, rate of interest is a reflecting wall into state of economy and decision marker for the financial acts. The trend of the interest rates is one of the factors that will help the participants in the economy to use these rates to shape their strategies and adjust to the instability caused by the same trends.