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Define interest rates

Updated: 9/11/2023
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12y ago

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Interest rates are the rate at which interest is paid by a borrower for the use of the money 'lent' from the lender.

That underlying interest rates from which the overall rate is determined, is set by the central bank of that country and is a proxy for the overall state of the economy. During high growth or inflationary periods interest rates are so as to slow down the economy to a sustainable non inflationary rate, or to 'bring down' the rate of inflation.

During weaker times (as in the age of austerity we are currently in) it is set at a much lower rate to encourage people to go out, borrow money and invest in ventures.

The rate is expressed as a percentage of the principle for a period of one year.

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