How does the change in the interest rates by a central bank of a country affect the stock prices of companies?



Suppose the central bank increases the interest rate from 6% to 6.5%. How will this affect the stock prices of companies in the relevant sectors?

How does the change in the interest rates by a central bank of a country affect the stock prices of companies?
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One Reply to “How does the change in the interest rates by a central bank of a country affect the stock prices of companies?”

  1. A rise in interest rates will lower the stock values in these ways:

    1. Borrowing costs will go up, so corporate profits will go down.
    2. The value of the currency will increase and reduce foreign demand for the stock.
    3. Rising interest rates reduce profits for banks and other companies that use short-term borrowing to make long-term loans.
    4. Interest on government debt will rise, leading to increased taxes and/or lower government spending, both of which will reduce corporate profits.





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