Question
What determines interest rates?
A. Interest rates are determined by central bank monetary policy, inflation expectations, economic growth and the supply and demand for credit.
Central banks influence short term rates to control inflation and economic activity, while longer term rates reflect expectations about future economic conditions and risk. For individual borrowers, lenders also consider creditworthiness, collateral, loan maturity and repayment capacity. Consequently, interest rates represent both the cost of borrowing money and compensation for inflation, time and risk.