Interest rates and exchange rate
Therefore, higher rates will cause ‘hot money flows’ and may cause the value of the £ to rise.
Interest rates determine the amount of interest payments that savers will receive on their deposits.
An increase in interest rates will make saving more attractive and should encourage saving.
Do interest rates affect savings?
An increase in interest rates may lead consumers to increase savings since they can receive higher rates of return. The overall health of the economy impacts consumer reaction to interest rate changes.
How did high interest rates affect savings?
How did high interest rates affect savings and loans (S&Ls) in the 1980s? S&Ls lost money. They had to pay high interest on deposits, but took in less money from low interest loans. High interest rates attracted more depositors, and S&Ls used their deposits to make more loans.
What happens when a country increases interest rates?
Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country’s currency. If a country can achieve a successful balance of increased interest rates without an accompanying increase in inflation, its currency’s value and exchange rate are more likely to rise.