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Interest Rates Rise Due To Inflation

Inflation makes interest rates higher. The causes are many, but 2 main causes will be discussed in this article. The first cause of the increase in interest rates was because the banks and creditors (lenders) adjusted the interest rates they set to the latest currency.

The decline in currency value due to inflation is included in the calculation to determine interest rates. So if next year the value of the currency will drop by 2%, the bank and creditors will ask for 2% above the profit margin they get.

The second cause of the increase in interest rates is because the government intentionally cooled the economy. By raising interest rates, loan interest will become more expensive. So that the level of new loans will be reduced.

The government (through the central bank) controls the economy by setting inflation targets. Because mild inflation can encourage economic growth. Inflation needs to be done so that people believe that prices will continue to rise. Healthy inflation of around 2%.

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