Interest Rate = Value of Money?
Interest rates are easiest to understand as 'value of money'.
The things you can buy with 1,000 won 10 years ago and 1,000 won today are different, right?
Money in the past is usually more expensive than money in the future.
Let me give you an example.
In 1994, the basic fare for a taxi in Seoul was 1,000 won, but in 2019, the basic fare for a taxi in Seoul is 3,800 won. If you borrowed 1,000 won in 1994 and want to pay it back at the same value in 2019, you have to pay 2,800 won more.
The interest rate is the interest rate calculated by calculating the value of the money that will be attached to it in the future.
The problem is that there are no set standards.
This is because each product or service becomes more expensive over time. Therefore, the base rate is the policy rate that the government roughly sets out by referring to various economic indicators.
Why does the government set interest rates
The government's main purpose in setting the base interest rate is threefold.
① Figure out how much money is currently circulating in the market
② Evaluate how monetary policy and economic activity are functioning,
③ To determine whether to stimulate or moderate the economic activity of individuals and businesses
Through the economic indicator called the base rate, we can guess the speed at which a country's economy is expanding. It is also possible to gauge which direction the people who decide monetary policy will move the economy based on the current point in time.
Although there has been criticism that monetary policy has lessened its influence on the actual economy recently, monetary policy, which controls the amount of money released into the market by adjusting the base rate, moves the entire market in various ways.
Monetary policy is the policy by which the central bank decides and implements how much more money it will release to the market or how much it will withdraw from the market. You can print more money, adjust interest rates to control the speed at which money circulates, or buy bonds directly. The interest rate adjustment part here is about the base rate.
When the base rate is raised, the interest rate called the 'call rate' immediately rises.
What is the Call Rate?
The interest rate applied when borrowing money between banks and financial institutions such as banks and securities companies
When the call rate rises, other interest rates in general are bound to rise because it costs more for banks to move money quickly and lead the financial market. The base rate affects the call rate, the call rate again touches the financial market, and the financial market moves the economy again.
What happens when interest rates rise
Rising and falling interest rates change the mood of interest rates in financial markets, such as short-term market rates, long-term market rates, and bank deposit and loan rates.
If the base rate goes up, it means that the government and central bank will release less money to the market in the future, so financial institutions are more cautious when lending to businesses and individuals. It means that the loan interest rate, such as the loan interest rate, is raised, and loans such as credit screening are carried out in a strict manner.
You can also read it in another way.
Interest rates are ultimately a matter of how much money is worth, so when interest rates go up, the value of money goes up. This reduces the value of real assets such as real estate and commodity inventories. Maintenance costs are high, and the interest you get when you have cash is higher.
to sum it up
✔️ In the end, the interest rate increase can be seen as adjusting the demand part among the two major axes of demand and supply that make up the market. If you look at the big picture of what happens when demand, or consumption, increases or decreases in the market, you can understand the role of the base rate in detail.
✔️ There are also parts that are more directly affected. It's a financial stock. If you ask me when the heck do banking stocks and securities stocks go up, I'd say it's typically when the base interest rate goes up and market interest rates go up one after another. As interest rates rise, banks benefit from increased interest income, so when the base rate rises, bank stocks generally rise.
✔️ However, the interest rate is said to be less money in the middle of the day, so the jeungsi itself will be somewhat vitality.
✔️ If our country raises the standard interest rate, there will eventually be a story of the standard interest rate in the United States in the background. In order to fully understand Korea's base interest rate, it is necessary to understand how it affects Korea when the United States moves the base rate.