Among the economic data followed in the forex market, the indicator or policy interest rate is very important. Because, if we define the interest rate as the cost or the return of money, we can see that this data is in direct relation with the value of money.
Central banks often use the interest rate weapon to intervene in the markets depending on their monetary policies. Depending on the situation in the country’s economies, they may choose to increase and decrease this ratio. Since it is a very effective instrument on the value of the currency, it can be shown as a ‘traditional’ instrument among the central bank applications.
Low İnterest Rates
First, some concepts need to be emphasized in order to understand how banks can influence the market with interest rates. These can be summarized as follows;
1) Inflation: It is defined as the continuous increase in the general level of prices. In inflationary environments, the purchasing power of money decreases. It is mainly due to the high demand. As the excess was detrimental to the country, being too low also means stagnation in the economy. Economists agree that inflation around 2% is defined as% inflation that should be ’.
2) Deflation: It is the opposite of inflation. It is seen in environments where demand is very low. People are afraid to spend their money or are in a shortage of money.
Consumption decreases too much, leading to stagnation in the economy. It is seen that the unemployment increases.
3) Quantity Theory: The higher the quantity of an asset and product in the market, the lower the price. However, the price of a small quantity of goods is high because it is difficult to reach or find that product. The same rule applies to money.