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Sri Lanka Equity Forum » Stock Market Talk » How Rise in Interest Rates can affect you!!

How Rise in Interest Rates can affect you!!

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1 How Rise in Interest Rates can affect you!! on Wed Feb 08, 2012 12:04 pm

CSE.SAS

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Global Moderator
Rising Interest Rates And Exchange Rate Instability Is Affecting The Market!!!

With the CB increasing policy rates due to rising credit expansion, the interest rates (deposit & lending rates) is likely to rise dealing blow on the market. What is needed is the opening up of the capital account and removal of all exchange controls coupled with making it convertible thus enforcing market determined exchange rates that can be trusted universally. Open market operations and interest rates can be used for controlling undesired volatility in exchange rates.

If you have a business, loans then a rise in interest rates is likely to mean that somewhere down the line you will have to pay more for your borrowing.

The following are 6 ways that an increase in interest rates may affect you:

1. Higher interest rates mean that the cost of borrowing money goes up. This can affect businesses because they will have to pay more for their borrowing which can lower their profits. Also, because the cost of borrowing goes up businesses are less confident to invest in new infrastructure and expansion projects.

2.Higher rates will affect home owners who are paying loan on their homes. A rise in rates will increase the monthly payments they owe. Higher monthly payments mean home owners have less money to spend on other things.

3.A rise in interest increases the cost of personal borrowing. This makes paying off personal loans and overdrafts more expensive. Credit card repayment rates which are one of the highest will also increase resulting in consumers having less money available to spend on consumer items and services.

4.When interest goes up this can reduce the value of stock market securities and bonds.

5.Interest rates rising may also have a negative effect on the value of shares on the stock market.

6. A rise in rates is good news for savers as they can earn a greater return on the money they are saving.

When there is in an increase in interest rates you will see plenty of headlines in the newspaper and press about how this will affect people who have borrowed a lot of money with loans and credit cards. In particular, the craze of house buying will affect many people who have mortgages particularly, home owners with big mortgages when they bought houses at the peak of a boom. However, as pointed out a rise in rates can also affect businesses, commerce and industry, financial investors and even a countries currency.

greedy007


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Timely one.
Thanks.

airborne

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Equity Analytic
Equity Analytic
Hi. Agree with you CSE
Here are some articles with differing views with regards to interest rates and stock prices
http://www.marketoracle.co.uk/Article27038.html
http://www.forecast-chart.com/dow-jones-fed.html

CSE.SAS

avatar
Global Moderator
@airborne wrote:Hi. Agree with you CSE
Here are some articles with differing views with regards to interest rates and stock prices
http://www.marketoracle.co.uk/Article27038.html
http://www.forecast-chart.com/dow-jones-fed.html

Thax airborne.

I will look...

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