authors
S Dinesh Kumar and SK Swetha

abstract
Interest rate changes, primarily influenced by central banks, have both immediate and lasting impacts on the economy. In the short term, when rates fluctuate, they directly affect borrowing costs, consumer spending, and business investments. An increase in interest rates typically leads to a decrease in borrowing and spending, which can slow economic growth. Conversely, when rates drop, it tends to boost borrowing and spending, giving the economy a lift. Financial markets respond swiftly, adjusting bond yields, stock prices, and currency values. Over the long haul, changes in interest rates can significantly shape the economic landscape. Persistently high rates can help control inflation and stabilize currency values, but they may also stifle long-term investments, productivity, and job creation. On the flip side, keeping rates low for an extended period can spur economic growth but also pose risks like inflation, asset bubbles, and inefficient capital allocation. Striking the right balance between these short-term and long-term effects is essential for policymakers aiming to maintain stable inflation, promote sustainable growth, and ensure financial stability. This summary emphasizes the dual nature of interest rate changes, showcasing their immediate and long-term consequences on the economy and financial systems.