Interest Rates & Economy

Interest Rates & Economy

INTRODUCTION:

Macroeconomic data includes many factors but mainly

            -GDP

            -Interest rate

            -inflation

            -Unemployment

            -Liquidity of cash

            -Monetary policy

LESSONS LEARNT:

1. Increase in the interest rate is NOT good for businesses.

            It affect both Companies and Consumers.

            Cost of capital (interest is increased to companies and hence expenses)

            Consumers reduce spending due to high interest and they buy less products. Hence, the sales of companies is reduced.

2. Good signs for investors :

            1. GDP increasing.

            2. Interest rate is low

            3. Unemployment is less

            4. Inflation is under control.

3. Bad signs:

            Opposite of above

4. Liquidity is maintained by CRR (Cash Reserves Ratio).

5. Inflation is caused:

            When RBI pump money in market and reduce Repo rate.

            Banks have huge cash to give loan.

            People take loans and buy products.

            Automatically, price of products increases.

6. Repo rate means interest rate of RBI, which is 6% now.             Bank get loan at 6% from RBI and give us at 9% home loan, 13 % car loan and 16% Personal loan….