Thursday, May 19, 2022
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..so that inflation remains under control, Britain raised interest rate for the fourth time in a row, reached the highest level of 13 years

New Delhi: Inflation is at its peak in the whole world including India. To control this, central banks around the world have started increasing interest rates. Many countries including Australia, India, America and Sweden have increased interest rates. Now the name of Britain has also been added to this list. This pushed the Bank of England’s key interest rate to a 13-year high. The bank has increased interest rates due to rising inflation due to high crude oil prices, Ukraine-Russia war and concerns related to Kovid-19. The monetary policy committee of Britain’s central bank has decided to raise interest rates for the fourth consecutive meeting. With this, the key policy rate in the country has increased by 25 basis points to one percent.

A day earlier, the US Federal Reserve had raised interest rates by 0.5 percent to control inflation. This is the biggest hike in policy rates in more than two decades. Earlier on Wednesday, the RBI had also increased the repo rate by 40 basis points, taking a shocking decision. Since then many banks have increased their interest rates.

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Which countries increased the interest rate
Along with India and the US, central banks of Australia and Sweden have also raised interest rates to tackle inflation. Australia’s central bank on Tuesday raised interest rates from 0.1 per cent to 0.35 per cent. The central bank has taken such a decision for the first time in the last 11 years. Sweden’s central bank raised interest rates by 25 basis points on April 28 and has indicated further hikes.

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What is the relation of inflation with interest rate
Due to the Russia-Ukraine war and the lockdown in many cities of China due to Corona, inflation in many countries of the world has reached the peak of many years. Inflation in any country increases when the supply of money in the market becomes more. That is, demand increases and people pay a higher price. In such a situation, to control inflation, central banks increase interest rates. Two big things happen due to this decision, one is that taking a loan becomes expensive, while investing money starts getting more interest. The cost of loans affects the money supply in the market. At the same time, people are also encouraged to invest money due to high interest. Instead of spending money, people start investing it, due to which the supply of money in the market decreases. Many countries take similar steps to control inflation.

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