Al-Marsad newspaper: The US Federal Reserve raised the main interest rate by half by 0.5%, in the largest increase in 22 years.
Raising interest rates is a criterion that determines the interest rates on loans that banks obtain from the Central Bank, and accordingly banks set their plans for a new calculation mechanism for interest rates on loans they provide to customers.
The higher the interest rate set by the central bank, the higher the interest rate automatically on existing and new loans, in currencies denominated in or linked to the central currency.
In the case of the US dollar, the cost of lending will rise from today on banks, and thus on customers, and this is a negative indication for economies looking to stimulate markets by setting low interest rates.
As the increase in the cost of lending will lead to a decrease in the pace of requesting credit facilities in the global markets, especially in the dollar and its related currencies.
If the decision to raise the interest rate has a negative impact on borrowing, then the decision bears a relatively positive aspect on the owners of bank deposits with banks operating in the markets, as the decision to raise interest rates also means that the depositor receives higher returns.
In other words, a dollar depositor, for example, will have the opportunity to enhance his deposits to obtain higher interest in return for depositing them with banks, due to the decision to raise interest rates.
In such cases, many markets are witnessing an accelerating rise in customer deposits in the banking sectors, to take advantage of the rising interest rates, in contrast, the liquidity availability within the markets is declining.
This means that bank deposits have become one of the forms of investment for individuals and institutions, by placing them within bank accounts, and charging interest on them on a monthly, quarterly or annual basis, according to the Associated Press.
The central bank raises interest when the rate of inflation in the economy increases, ie, the prices of goods and services increase.
As a consequence, the price of money becomes expensive, people and businesses can borrow less, spend less, and demand for consumption decreases, thus lowering inflation.
The higher the interest rate set by the Central Bank, the higher the interest rate automatically on existing and new loans.
Economists described these measures as the Fed’s most radical steps in three decades to combat inflation, explaining that the measures would make borrowing to buy a car or house, conclude a business deal or buy a credit card more expensive, which would double the financial pressure on Americans.
