What factors affect Forex interest rates?
Rates of Interest Supply and Demand: The levels of forex interest rate are a factor of the supply and demand of credit. When there is a surge in the demand for credit, the forex interest rate will raise. When there is a decrease in the demand for borrowing money, the forex interest rates will decrease. Conversely the supply of credit will force the forex interest rates lower while a decrease in the supply of credit will force them to increase. Forex Interest Rate Inflation: Forex interest rate is also governed by the rate of inflation in that country. Interest Rates will increase as the rate of inflation grows higher. Inflation refers to the fact that a given amount of currency will have a decrease in its buying power in the future. A given amount of money will buy less quantity of goods in the future than it will today. The borrower of money needs to raise the interest rate to secure his investment against future inflation.
