cuses of rise in intrest rate

7/31/2019 Cuses of Rise in Intrest Rate

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PRESENTED BYJAFFAR NAQVI

AMNA JAVED

KHURRAM SHAHZAD


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The general economic picture of a society is one ofthe more important causes of rate increases. If theeconomy is not doing well for whatever reason,business loans become that much more risky.

Therefore, banks will be more reluctant to lend. Thisis reflected in the increasing rate of interest.


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Many governments worry about inflation.Therefore, if an economy is growing "too fast,"the central bank, influenced by the

government, might raise rates. EXAMPLE:


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Supply and demand make up a large part ofdetermining interest rates. If rates go up, money willgo into the bond, or loan market, since that moneymight do well under the higher rates.


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When the national savings are low then thelevel of interest rises in the country.


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The demand for the country's currency can also cause ahike in interest rates. Large trade deficits can be animportant cause for this. Dollars are being shipped outof the country to pay for foreign imports over and

above the society's exports. Since there are now fewerdollars in circulation, their price will increase. Thelarger the deficit, the more upward pressure on rates.


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In order to raise the level of F.D.I state raisesthe rate of interest.

EXAMPLE


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In order to raise the domestic level ofinvestment state bank lowers the rate of intrest.


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State bank also use this tool to increase themoney supply in the country.


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In order to raise the employment level in thecountry state bank lowers the interest rate.


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If the economy overheats and inflation is high,interest rates will have to be really high just toreduce inflation. This was the case in the 1980's,when Paul Volker was the chief of the USCentral Bank.

If the economy is slow, and deflation ispossible, interest rates will have to be really

low just to prevent a deflationary economicdepression. This is the case in Japan for the pastdecade, and in the rest of the Western Worldstarting late 2008.


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Interest rates rise when things are going wellin the economy. If prices of goods and servicesare high because of high demand, interest rates

may increase to help push prices back downand slow down growth.


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The benchmark interest rate in Pakistan was last

reported at 12 percent. In Pakistan, interest rates

decisions are taken by the State Bank of Pakistan.The official interest rate is the discount rate. From1992 until 2010, Pakistan's average interest ratewas 12.78 percent reaching an historical high of

20.00 percent in October of 1996 and a record lowof 7.50 percent in November of 2002. This pageincludes: Pakistan Interest Rate chart, historicaldata and news

cuses of rise in intrest rate

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