what is the effect of high and rising inflationary rate on the rate of interest?

      

what is the effect of high and rising inflationary rate on the rate of interest?

  

Answers


Wilfred
High and rising inflationary rate has an effect of increasing interest rates. During inflation, money loses value and lenders (such as banks and other financial institutions) have to reflect an upward adjustment on the interest charged on loan-able funds (credit funds). High and rising inflation therefore increases the cost of capital/credit and the demand for funds is largely reduced in the economy, limiting the availability of investible funds. Moreover, the limited funds available will be invested in physical facilities which appreciate in value over time. It is also possible the diversion of investment portfolio (the amount available for investment) into speculative activities away from directly productive ventures
Wilfykil answered the question on February 7, 2019 at 07:07


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