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What factors determine the rate of interest in an economy?

What factors determine the rate of interest in an economy?

Answers


Gregory
? Credit Management performance standards – eg by banks and other financial
institutions. Credit management efficiency levels determine the size of non-
performing loans and bad debts, which tend to force banks and other lending
institutions to readjust and try to cushion themselves with revision of interest
rates on new loan agreements.
? Size of government budget deficit – budget deficits necessitates government
borrowing from the open market through manipulation of the treasury bill
rates; treasury bill rate is usually used by commercial banks as a benchmark
to determine their base lending rates.
? Demand for and supply of loanable funds
? Inflationary tendencies – direction of change in the average level of prices.
? Availability of off shore lines of credit – determines the rate of interest
charged by domestic lenders.
? Exchange rate variation – lenders with off shore lines of credit, for instance,
(for the purposes of lending domestically) and who have to repay in hard currencies, will have to adjust upwards their interest rates whenever the
domestic currency depreciates.
Gregorymasila1 answered the question on March 2, 2018 at 19:22

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