The influence of interest rates on the economy
Posted by dian eko | Filed under economic update
Working capital is required by the actors of economic activity, in addition to opening new businesses, capital is also in use for business development. Apart from business profits, working capital is obtained by issuing bonds or make loans to banking institutions.
Issuing bonds or borrowing to banks would be subject to a variety of fees and certainly is interest. We have interest to issue bonds or loans are increasing. This is because the turmoil of the global crisis, so people prefer to save money by saving on bank deposits because interest rates are high, and receive the effects, of course, interest rates for any loan would be higher than savings rates. This greatly affects the economic actors to conduct their business expansion. Because when interest rates rise then the credit for employer’s ability to repay loans and the greater it will affect the company’s financial impact on the decline in the quality of goods or termination of employment.
With these circumstances would have resulted in wide spread national economy. Decline in the quality of goods, rising prices of goods and services, and high termination of employment, will mislead the economy down and the low purchasing power resulting in a high inflation rate. Therefore, banks should start thinking to lower interest rates so the economy can run well. Because if the economy goes well, the government revenue from taxes will increase.
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