It’s time we had a serious talk about interest rates. And, while we’re at it, inflation. Someone in my job knows it’s time to talk turkey when the man in charge of rates, Reserve Bank governor Dr Philip Lowe, decides to go on the ABC’s 7.30 program to talk about both.
There’s much to talk about. Why are interest rates of such interest to so many (sorry)? Why do some people hate them going up and some love it? How does interest rates and the inflation rate fit together? Why do central banks such as our Reserve keep moving them up and down? When rates go up, they normally come back down – so why haven’t they this time?
Starting with the basics, interest is the price or fee that someone who wants to borrow money for a period has to pay to someone who has money they’re prepared to lend – for a fee.
Legally, the “person” you’ve borrowed from is usually a bank, while the person with savings to lend deposits them with a bank. But economists see banks as just “intermediaries” that bring borrowers on one side together with ordinary savers on the other.
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