Central banks regularly bring about changes in the official interest rates in response to an economic activity. Thus, interest rates are raised when the economy is robust and lowered when it is sluggish. When the Central Bank raises interest rates, short-borrowing costs of financial institutions also increase automatically. Thus, it results in the widespread impact on borrowing costs for companies and consumers. Borrowing funds can get cheaper when the Central Bank lowers rates. As a result, consumers and businesses tend to spend more, boosting asset prices. As a result, the prices of stocks rise.
- High interest rates negatively impact company profits.
- * Small companies are hit the most. *High interest rates bring down domestic participation in stock markets.