What Is an Interest Rate?
Interest rates influence the cost of borrowing and the return available on certain forms of savings and investment.
Central banks use interest rates as a major monetary-policy tool.
Examples of central banks include:
- Bank of England
- Federal Reserve
- European Central Bank
- Bank of Japan
Why Traders Care
Interest rates can influence:
- Currency values
- Economic growth
- Inflation
- Investment flows
- Borrowing costs
For example, if a central bank unexpectedly raises rates, markets may adjust their expectations for that country’s currency and economy.
Don’t Try to Memorise Everything
As a beginner, focus on understanding the basic relationship.
Central banks influence monetary policy.
Monetary policy influences economic expectations.
Economic expectations can influence financial markets.
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
