Here are some of the economic factors causing rate increases in the present world. One of the factors is inflation. When inflation occurs the value of the currency depreciates which means a significant increase in the price of goods and services as well as interest rates.
In case of inflation the government also reviews the tax rates that are charged to citizens. In this case the only way that the taxes go is up. This is usually done so that the government can still be able to finance its fiscal policy.
Economic Factors Causing Auto Insurance Rate Increases
The central bank, in the event of inflation, reviews the lending rates to commercial banks and increases them. This is seen as a move to try and curb some of the liquid money rotating. The commercial banks pass on the high rates charged to them to the consumers who take loans. This somehow discourages people from taking loans because of increased interest rates.
For those who invest in government bonds and bills, they also have the rate of return increased if inflation rocks the country. The rate at which the money was to be paid back is reviewed and the pay is made at the going market price. Investors can rest assured that their investment does not lose value with time.
Another contributing factor is a weakened currency against other foreign currencies. The central bank tries to strengthen the currency of the country by offering a high exchange rate against the foreign currency. This step is always taken so that the foreign currency reserve can increase and this way the currency can become strong again.
Oil is also known as black gold because of its vital role in the economy of any country. It is the main source of energy for most projects and therefore a country cannot live without it. Countries that have oil as a mineral resource have been known to have a thriving economy. However, there are countries that are dependent on buying the fuel they need. When world oil prices go up, the economy of such a country suffers and an increase in many rates is noted.
The economic performance index of any country is used by the government to decide as to whether it is necessary to increase the tax and interest rates. If the results posted show poor performance, then the government decides to increase the rates so that all the development goals can be met. The government may also decide to initiate new projects in the country which require extra money and this can be sourced from increased rates.
With the high rate of unemployment and high rates of risk, banks have reviewed their lending rates and decided to increase them. This has mainly been due to the fact that the person who takes up the loan might end up bankrupt thus unable to pay. The rate of repayment is increased so that those who feel that they could be unable to pay can avoid the loan. The move has saved banks a great deal of money.
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