2007-09-18 21:03:05 · 4 answers · asked by azad i 1 in Business & Finance ➔ Other - Business & Finance
A higher rate of defalted loans.
2007-09-18 21:07:25 · answer #1 · answered by V B 5 · 0⤊ 0⤋
I'm not very sure but this is my understanding. I hope it is correct.
When interest rates go up - Borrowing decreases and savings increases
Borrowing decreases - Less cash in hand
Less cash in hand - Fewer goods being purchased
Fewer goods being purchased - Demand is less
When the demand for a product is less so does the cost of the good.
Hence, inflation is curbed.
2007-09-19 04:21:57 · answer #2 · answered by Babygirl 3 · 0⤊ 0⤋
During rising inflation, central banks want to increase their interest rate to reduce the money supply by making money more expensive (you can view interest rates as the price of money, this is how morgage companies make their living). If less money is available (against real goods and services) money will be dearer (i.e. devaluation decreases).
2007-09-20 02:42:01 · answer #3 · answered by fred 2 · 0⤊ 0⤋
They want to cover their losses on inflation by getting more cash from interest.
2007-09-19 04:07:12 · answer #4 · answered by Mike1942f 7 · 0⤊ 0⤋