The subject of interest rates has been a topical issue lately. This article will explain what interest rate is; how it is used by the Reserve Bank of Fiji for monetary policy purposes; the reasons for the recent interest rate increases and how interest rates in Fiji compare with other countries.
Money, like any other commodity has a price to it. The price of money is the interest rate. If you are a saver, interest is the return that you receive when you invest your money in bank deposits. Conversely, if you are the borrower, interest is the cost of borrowing that money.
Therefore, the rate of interest affects peoples’ decisions on whether to save or spend their money. Let us take the situation when interest rates rise. People will save more, because returns are higher, and they will borrow less because funds are expensive.
Likewise, the reverse is also true. If interest rates are low, people will borrow more because money is cheaper and save less because the return is lower.