How Do High Interest Rates Affect Businesses?
Interest rates represent the cost of borrowing, or the cost of obtaining money. Though central banks can influence interest rates by adjusting their benchmark interbank overnight lending rate, the most important interest rates are set in open markets, such as the U.S. Treasury market. Other important rates, like the London Interbank Offered Rate (LIBOR), reflect an average of actual rates paid by large institutional borrowers. From such benchmarks, the actual rates paid by most businesses and consumers are determined. High interest rates affect business because they influence both their own direct costs and the ability of their customers to borrow and spend.
