Interest rates - why do we care?

Interest rates. National and international interest rates. Why do we care about them?

Every time there is an interest rate report on the horizon we all are going crazy. You know, especially the newcomers to forex who think that they only supposed to do that because everyone else does. But that is not really true. We are supposed to care about interest rates because they are an important part in the whole trading process.

What are interest rates? These are the percentage of the banks. Percentage with which they give out the loan and with which they allow clients to put money on a deposit account. This is a general description of an interest rate. But again. Why do we care?
Well, in reality for us interest rates – national and international are a perfect index for the real state of economy. The higher the interest rates are. The slower the economy grows as people prefer not to go out and take loans from the banks and prefer to save up instead, that means that the less money is poured into the economy of the country.

The lower the interest rates are the more likely it is that the people are going to go and borrow money from the banks. As a results of all of the back payments, economy grows faster and the inflation of the currency grows faster as well. 

In general interest rates are determining whether the flow of a global capital is going to go into the country or out of it. This in its turn is reflected in whether investors are interested in supporting the economy of a said country.

So, why forex traders care? Well, because interest rates are a perfect way to determine whether the currency in question is going to be attractive for traders in the long run or at least until the end of the current monetary cycle.

In the couple of next lessons, we are going to talk about different types of interest rates as well as their influence on the market.