How to manage the interest rate increases😲
#1 Why do interest rates increase
We wanted to provide some insights into the reasons behind the increase in interest rates, as it’s a topic that affects many individuals and businesses alike.
Interest rates can fluctuate for various reasons, and central banks, such as the Reserve Bank of Australia (RBA), play a pivotal role in influencing these changes. Here are a few key factors that contribute to the decision to raise interest rates:
Central banks utilise interest rates as a tool to control inflation. If inflation rises above the target range set by the central bank, it may choose to increase interest rates. This measure is taken to cool down the economy and reduce spending, thus addressing inflationary pressures.
Strong Economic Growth:
During periods of robust economic growth, there is an increased demand for goods and services. To prevent the economy from overheating and to curb the risk of uncontrollable inflation, central banks may decide to raise interest rates. This action makes borrowing more expensive and helps to temper spending.
Low unemployment rates can result in heightened wage pressures as businesses compete for a limited pool of workers. This competition can contribute to rising inflation. In response, central banks may choose to raise interest rates to moderate economic growth and maintain control over inflationary forces.
Understanding these factors can provide valuable insights into the broader economic context and the rationale behind decisions made by central banks.
Join us over for more in this series, where we will share valuable insights on how to manage these increases and come out on top!