inflation/interest rates

y0ssar1an22

i aint no dr. of economics so forgive me if i'm missing something here...

banks increasing interest rates to slow infaltion.....is that not just more money to them?

i dont get the rationale of taking money from people via increased interest rates to the banks.

could the same be achieved by asking people to spend less? why give it to the banks?

silliussoddius

It can lead to people saving more due to a higher return on deposits, which may reduce spending.

Padre_Pio

The ECB raises interest rates in Europe and the Fed raises them in the US. They make credit more expensive so people and businesses slow down spending, lowering demand and inflation.

This makes it more expensive for banks to borrow money, so they in turn raise interest rates on loans and mortgages.

Most Irish banks had plenty of cash on the books, so were slow to pass on interest rates, while some like Finance Ireland had to raise them immediately.

the_amazing_raisin

https://www.boards.ie/discussion/2058298212/inflation-interest-rates

The basic idea is to make access to loans more difficult so that people and businesses slow down the rate they spend money

It also makes savings more attractive than spending money since theoretically you'll make more money that way

It's a pretty coarse mechanism, but it's part of the divide between monetary and fiscal policy. Monetary policy is basically the rules governing the availability of money and is controlled by the central bank. Fiscal policy largely concerns how money is spent, mostly by government but they can also control consumer spending to some extent

Using interest rates to slow inflation does work overall, but it doesn't differentiate which segments of the population it hits, it just affects everyone equally

This is where fiscal policy is supposed to step in and cushion the blow for vulnerable people. Things like increased social welfare payments or raising the minimum wage are part of this

It's worth keeping in mind that there's still plenty of money floating around despite this. Plenty of luxury items are still selling well, lots of people are paying inflated prices to go on holiday

And there's a fair amount of profiteering going on from the looks of things. Companies are quick to blame cost increases, but it seems like their costs go up by 10% so they raise prices by 20% and keep the extra profits

To put it in pretty harsh terms, the reason prices are so high is because people are still buying stuff at those prices. If everyone tomorrow suddenly stopped buying iPhones, going on holiday or eating out then it would cause some significant price cuts in those areas

gipi

https://www.boards.ie/discussion/comment/120648967#Comment_120648967

Except that, at the moment, banks have been very slow to offer any increase in deposit interest rates - there are some who are still offering 0% or close to it. As another poster said, the banks are cash-rich at the mo.

riclad

In theory rising interest rates slow down the economy and make it more expensive to borrow money ,it mostly effects companys and people who have large loans or mortgages ,it doesnt effect people equally, alot of people have no mortgage or live at home eg they have no large loans to pay back to a bank.interest rate go,s up 1 per cent can mean a rise of 25 per cent in the cost of a monthly mortgage payment.the problem is ireland imports alot of products ,phones,tv,s ,consoles, building materials fromj the eu or uk. So we have limited control over inflation.