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An increase in interest rates can affect a business in two ways: Customers with debts have less income to spend because they are paying more interest to lenders. Sales fall as a result. Firms with overdrafts will have higher costs because they must now pay more interest
The Interest Rate is a tool used by Central Bank to manage the country Economy, when the economy is goes to high inflation the Central Bank decide to increase the interest rate to take the supply of Money form the market, in other side the people will going to deposit their money with high interest rate for fear of losing their money's value by inflation, and here we see the effect of higher interest rate to make the inflation decrase after a while of time, despit of the higher interest rate will decrase the investment transaction at the country while the investors would preffer the risk free rate of return.
