The Impact of Interest Rates on Stocks

While these two types of interest rates are distinct from one another, they’re also closely linked. When banks are lending money more cheaply with a lower interest rate, this can be passed onto the consumer by lenders, keeping rates lower for borrowing as well. Traders are impacted by these interest rates because they can affect the price of stocks, causing them to move up or down.

Borrowing becomes more expensive and there is more incentive to save money, so people may be encouraged to spend less.Borrowing becomes cheaper and there is less incentive to save money, so people may be encouraged to spend or invest. Central banks will try to control these functions by setting bank rates (the target interest rate for banks lending money to other banks from their reserve balances) in an effort to keep inflation in check. A central mandate of theThere are two main ways in which stocks are affected by interest rates: directly and indirectly. Here is a summary of how businesses, and therefore stocks, are affected by changes to interest rates:

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Interest Rates Stocks Borrowing Saving Spending Investing

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