Capital cost effect

The fact that – an increase in banks’ refinancing costs must be passed on to customers. – Rising interest rates for loans, however, sooner or later lead to lower growth in lending and – thus to a dampening of credit-financed demand, primarily for business investment and residential construction. – If interest rates are lowered, additional investment cannot necessarily be expected, because in this case – and especially if interest rates are already low – it is primarily expectations regarding profits that play the decisive role. – See Braking distance, monetary policy.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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