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What happens to interest rates in a recession?

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29th Nov 2009 by cocacolabuffet

Interest rates are usually lower in a recession for mainly a couple of reasons. First, in order to stimulate the economy, central banks usually adopt expansionary monetary policies to the interest rate. Second, businesses and individuals are usually reluctant to borrow as much due to risk aversion and lack of expansion opportunities. Lower demand for loanable funds leads to lower interest rates.

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5th Nov 2009 by Gary

While there is no set answer to this, the usual experience is for interest rates to go down in hopes business will take out loans in order to expand and grow their business, thus creating more jobs. Normally the central banks of a country will set interest rates low in order to generate this activity, like they are in the current recession.

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5th Nov 2009 In Investing 2 Answers | 1841 Views
Subjects: interest rates, recession interest rates,

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