A few days ago, all the media reported an interest rate hike. The last time interest rates were raised in 2012, they have since been continuously lowered to near zero. Journalists immediately started talking about the end of cheap loans and calculating the amounts of the increase in installments of already granted financing. Interest rates - what are they and is there really something to be afraid of? What you will learn in this artile:
Negative interest rates - what do they mean?
Inflation and interest rates - what is the relationship between them?
To answer the question of how interest rates affect borrowers, one should start by answering the question: interest rates - what are they?
Interest rates mean the cost of capital, or the price at which its owner makes it available to others for a specified period of time. Most often, rates are expressed in percentages measured on an annual basis. There are several prices that can be taken into account when talking about interest rates. Recently, the rates set by the Monetary Policy Council, the body operating at the central bank, have been loudly heard.
Interest rates in Poland have been systematically dropping for almost ten years. The Monetary Policy Council, taking into account the condition of the Polish economy, has lowered interest rates to almost zero in recent years. Reducing interest rates leads to the fact that loans are more easily available, and thus easier financing affects a greater amount of investments.
Low interest rates matter for every borrower. They mean that loans are cheap, i.e. we pay less interest on the borrowed capital. Thus, an increase in rates will cause the installments of already taken loans to increase. If? It depends on when and on what terms we took out the loan, which we are currently repaying.
We are used to the fact that financial products such as deposits bring profit. We deposit funds on the deposit for a specified period of time and on specified terms, and after that time, the bank pays us funds increased by a percentage of the profit. The situation of low interest rates enjoyed by borrowers is not favorable to depositors. Their profits, which depend on the level of interest rates, are symbolic.
But what if there are negative interest rates? In this case, the situation of borrowers still looks favorable, because the bank will not earn from the interest on their loans. The situation for deposit holders, however, will look even less in such a situation. By placing funds on the deposit, not only will we not earn, but after the time for which the deposit has been concluded, the bank may return us less funds than we paid to it.
In the discussion that continues in the media, you can hear that inflation, which affects the increase in the prices of goods and services, may be halted after an increase in interest rates.
Inflation and interest rates - then how does this mechanism work? Most often, when inflation rises, interest rates also rise. The purpose of this action is to influence the prices of goods and services, which become more expensive due to inflation. Raising interest rates, that is, the price of money, stabilizes price growth.
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Mortgage broker
Michal Kaplon
os.Stefana Batorego 80
60-687 Poznan
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