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Friday, March 27, 2015

Interest rates and their history

Interest rates differ between countries, but are used by central banks to impact economic activity. When employment and inflation are high, raising interest rates helps limit the supply of money and acts as a brake to control overheated economic growth. This helps reduce the risk of financial cataclysm or excessive asset valuations and speculation. 

To the contrary, when economic activity is slow, monetary policy often lowers interest rates for the purpose of stimulating lending and economic activity. By making money cheap, the incentive to borrow rises or the disincentive is reduced. Low rates also encourage lending activity in specific economic sectors such as the real estate industry. 

The infographic below details international developments in interest rates over time:
History of interest rates infographic link