How and why do interest rates increase?
In: 11
Simple supply and demand usually.
Economies demand certain amounts of loans, there is only a certain amount of money to loan out. If we reduce the amount of money to loan out, supply and demand says the price of these loans (aka interest) has to increase.
Central banks have a couple of levers they can push to change the amount of possible money to loan out. They can have banks hold more money in reserves that they can’t loan. Central banks themselves loan money printed out of thin air and this also increases the supply of loaned money, they can just do less of this as well or charge higher interest to do it.
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