Interest rates are influenced by your country’s central bank. They may be adjusted to stimulate or curb a country's economic growth.
Understanding how the rise and fall of interest rates affect businesses, individuals (like you and me) and ultimately your investments, will help you ride the wave with confidence.
When Interest Rate Falls
In general, low interest rate stimulates economic growth and increases inflation.
Cheaper for businesses to borrow
The cost for businesses to borrow money is reduced, thus businesses will likely embark on growth projects such as business acquisitions and expansion and product development.
Invest for better returns
Savings are less attractive due to lower deposit rates; individuals are likely to invest spare cash into investment instruments for better returns.
Investment Opportunities
in the midst of a low interest rate environment
Look for funds that invest in growth stocks or sectors.
Seek bonds with attractive coupons or higher dividend paying stocks. If you are holding to such high demand assets, this might be an opportunity to capitalise your assets.
When Interest Rate Rises
In general, high interest rate cools an overheated economy and reduces inflation.
Higher borrowing costs impedes business plans
Cost for businesses to borrow money is increased, thus businesses will likely halt or reduce growth projects.
Hunt for quality bonds and companies in Financials sector
Savings are more attractive due to higher deposit rates; individuals may consider investing in assets, businesses or sectors that will benefit from rising interest rate.
Investment Opportunities
in the midst of a high interest rate environment
Financials sector such as banks, mortgage and insurance companies stand to benefit as interest rate hikes.
Attractive fixed deposit rates may entice savers. Investors may be able to pick up quality bonds at a favourable trading price.
