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When the central bank meets to decide on the level of interest rates, most people care about only one thing: are my home loan, car, and credit card repayments going up, down, or staying the same? Although this is no trivial concern given the importance of managing a household budget, such a limited view does scant justice to the broad, critical, and complex role interest rates play in an economy.
What Soda Prices Tell Us About Interest Rates
The usual narrative is that low rates are good and high rates are bad. But the real problem is not “high” interest rates, but wrong interest rates. You see, interest rates are like prices.
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