Why do interest rates rise and fall?On August 16, 2019 by Pat Vinson
Interest rates are always moving, sometimes they go up and sometimes they go down. Who orders the change? Why does it do it? How does it affect you?
I’m glad you ask for rates. It really is a subject that affects us in our daily lives. Also, understanding the basics will allow you to do good business . Let’s see.
The interest rates in Mexico
Inflation is the main reason that explains the increase in the interest rate by Good Finance . Another reason that could explain the increase in the interest rate by Good Finance is to maintain some exchange stability. An increase in the interest rate by the Bank of Mexico necessarily implies an increase in the interest rates paid by companies and individuals. In this sense, the indebted entities that have not agreed on a fixed interest rate will see an increase in the rate from loans acquired.
What do you evaluate to decide?
Good Finance has, by law, the obligation to monitor and regulate inflation (among other factors). There are factors that raise prices and make living more expensive. They can be external factors, such as a decision like the US Federl Reserve System on the value of the dollar or the fall of a strong economy in the world or a natural disaster. But there are others that are internal and can be controlled.
Inflation can rise when people consume many things. There are cycles in the economy that, due to the low credit rates , we are encouraged to buy. Of everything. We make great purchases for the house, we give ourselves luxuries from time to time, we have dinner outside, we change the cell phone, and we buy housing. Companies also spend and borrow by taking advantage of the low cost of money. Exporters take advantage. Low interest rates push the value of the currency up and when making the change to the dollar, they receive more money for their sales.
It is a good cycle. The economy is energized. Until inflation starts to rise. At that time, it is time to adjust the rates.
Why modify the rate?
To keep inflation from going up, Good Finance sends the following signal: the reference interest rate goes up. That is, it tells the financial system that it should raise the rates at which it lends us money and pays us interest.
The effect of raising rates is very fast: the value of money rises and investors decide to stop spending and rather save. Buyers realize that credit cards can be expensive, and we lower purchases. Companies think their investments better. Importers have a party. That is your favorite cycle.
Does a low rate affect you?
At the beginning of this year, Good Finance lowered the reference rate. Again. He has done it several times in recent years. Its decision means that inflation is controlled, it is in the figure that Good Finance wants, and it is a good time to encourage loans.
Banks read that mandate and must act. Of course, mortgage loan rates are affected, down. It is an ideal time to invest in real estate. And, also, it’s time to review your business.