Interest rates: what do they depend on?

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Interest rates shape the monetary policy of countries or geographic areas. To the point that it has very direct effects on the lives of citizens. Not surprisingly, they are closely related to money price. For the moment, interest rates show an uneven evolution on both sides of the Atlantic. In other words, they have taken different paths in the United States and the European Union, two of the most representative economic zones in the world. And that in a certain way they are conditioning the evolution of equity markets worldwide.

Simplemente, las tasas de interés son las que determinan el precio del dinero, en un sentido u otro, como verás en este post. Sea cual sea el caso, además es conveniente que tengas en cuenta que están moduladas according to the inflation rate. Where the cost of living is taken into account to establish whether or not to increase them. This is a very important economic data that has many derivations in various sectors of the economy. And that have gained special importance after the economic crisis developed in 2008.

For you to understand them better, you must know that the interest rate or interest rate is the price of money, in other words, it is the price to pay for using an amount of money during a certain time. It is essential to carry out any economic transaction. As an example, at the time of demand a personal loan or mortgage. But also to detect the profitability of savings or investment products. Since depending on their evolution they will go up or down in one or another intensity. Even with practically zero performance, as is happening at the moment.

Interest rates: different strategies

Whatever the case, the best example to clarify what interest rates are is to go to what the main monetary authorities in the world are doing. To this end, the European Central Bank (ECB) decided lower the price of money as a formula to fix the problems derived from the economic crisis. In other words, the value of money in this economic zone today is 0%. This means that the banks apply a lower interest to the required loans. As on the other hand. It occurs today when they have dropped to a 7%.

Otro efecto de la strategy monetaria en la UE es que la rentabilidad de los productos bancarios y de renta fija cae drásticamente. Hasta el punto en que los depósitos a plazo, los pagarés bancarios o las cuentas de alto pago ya no son they barely give you an interest of 0.5%. All this as a result of the lower price of money in this economic space. As you may have seen, its effects are absolutely different depending on the needs that you demand of your financial institution. But whatever the case, it affects your relationships with the world of money.

Progressive increase in the United States

Another very different scenario is the one that occurs on the other side of the Atlantic. Where interest rates are going to rise progressively during this year. Even when it is slow until it is in a range that oscillates between 1,50% and 2%. It is the decision that will be assumed from Federal Reserve of the United States (FED). This in practice means something as simple as that the profitability you obtained with your savings will be more satisfactory than until now. Although on the contrary, from now on it will cost you more to finance yourself. This is a scenario caused by the strength of the US economy.

As you may have seen, there are two scenarios that present important divergences. Y que en unos te pueden beneficiar mientras que en otros el efecto será totalmente contrario. Con un punto en común en ambos espacios económicos y es que la inflación parece estar controlada como resultado de la aplicación de estas medidas monetarias. Debido a que si no hubiera sido así, no podría haberse desarrollado de esta manera. Sea cual sea el caso, a partir de ahora tendrás un poco más clara la incidencia de los tipos de interés en el ámbito puramente económico. ¿Pretendes verificar otros links de especial relevance?

Depending on supply and demand

Another aspect to pay attention to clarify the relevance of interest rates is based on a strict law of supply and demand, which is always regulated by the financial markets. As a result of these actions, the lower this interest rateThe higher the demand for financial resources and, conversely, the higher it is, the lower the demand for these financial resources. It will be a priority factor to raise or lower the price of money through any line of credit.

This means that you can find a more competitive interest rate or not on the credit that you are going to demand from your bank. And on the other hand, that your savings are better paid than before and you have a greater capital in your savings account. As you have seen, the interest rate is not only an important macroeconomic variable, but it will also be useful for the relationships you maintain with your financial institution. Through almost all banking products (time deposits, mortgages, pension plans, savings accounts, etc.). With a very clear incidence in your personal finances anytime.

No variations in the European Union

The Governing Council of the European Central Bank (ECB), considers for this year a review of its inflation and growth forecasts for 2018 and 2019, in a first estimate over the previous year and which means that there will be no developments in monetary policy in this important common economic space. To this end, from the issuing body of the old continent the rate remains at 0% con el principal target de asegurar que las condiciones financieras sean favorables.

Another of the most aggressive monetary policies is the one being developed in Japan to try to promote its economy. So that from this dynamic it returns to the growth path that it abandoned many years ago and that has led it to adopt a very special economic situation in recent decades. Well, in this circumstance, the Bank of Japan decided since 2016 to cut its benchmark interest rate, which has placed it in negative territory.

How to take advantage of the interest in the stock market?

Interest rates can definitely help you make your trading in the stock markets profitable. From different strategies that you can apply from these precise moments. One of the most effective is to open positions at the moment when the value of the price of money is reduced. Usually financial markets they react with great euphoria to this type of measures. With a significant revaluation of its main stock indices over a more than prolonged period of time. With a clearly bullish scenario that you cannot miss.

Another system that you can use is based on leaving the bag in the opposite movements. In other words, when there are increases in rates of special intensity. With a very negative reaction from the financial markets. To the point that they can make you lose money in a very short time. On the other hand, you cannot forget that these movements equalize downtrends of actions. Therefore, they are not good travel companions to make the savings profitable. You will have no choice but to look for other investment alternatives.

Application in banking products

On the other hand, it is important that you know how they develop during the life of a line of credit, whatever its nature. In this particular context, the interest rate remains constant throughout the life of the loan. It is independent of the current market interest rate. Even if at the moment you are going to hire him because it will depend on his situation in the markets. From this dynamic, you will be able to take advantage of its decreases or, on the contrary, of its price increase. Whatever the case, it is calculated based on the average of the interest rates of the previous months. Usually you repayment term varies from a few months to 3 or 4 years. Even though in some modalities the periods can be significantly lengthened.

It will be the amount that you will have to pay to the financial institution for having left you or loaned money. From this dynamic, to finalize it, you will have no choice but to pay your return, the corresponding interest and commissions and other expenses in the administration, if any. In general through a constant system of monthly installments. Even though it will depend on whether an early amortization can be made. To this end, a difference of a few percentage points of can mean a very important saving in the cost of this banking product.