Is it possible to have high interest rates and high inflation rates also?

I understand the basics, lower interest rates=higher inflation, higher interest rates=lower inflation. But is it possible to have high inflation, and high interest rates? Thanks for the answers.

Is it possible to have high interest rates and high inflation rates also?

Absolutely. A real life example of this is the New Zealand (NZ) economy. Inflation has surpassed the legislated standards for price stability under the Polci Targets Agreement, %26quot;inflation must be kept between 1 to 3 per cent inflation in the medium term%26quot;. Although inflation has been slightly over 3% in the last half a decade, non-tradeable inflation has averaged 4.2% over the period.

Tradeable inflation is the inflation on goods and services that have imorted substitutes to compete with them, forcing domestic producers to compete with the world price. Tradeable inflation in NZ had averaged around 0.5%, with deflation during two years in the period. Non-tradeable inflation, such as real estate, has remained high.

The central bank of NZ, or the Reserve bank of NZ (RBNZ), has continually increased the Official Cash Rate (OCR) [wholesale interest rates] to curb consumtpion and investment, thus theoretically decreasing inflation.

However, since the NZ economy has the second highest long-term interest rates in the OECD (1st is Turkey), foreign savers wish to deposit their money into NZ banks. They demand NZ dollars (NZD), which causes the NZD to apreciate. The appreciation of the dollar leads to increased inmports, as they are now relatively cheaper in terms of NZD. The result is a net increase in consumption, so increasing interest rates to control inflation is actually causing inflation to increase.

Is it possible to have high interest rates and high inflation rates also?

Absolutely; in fact, it is almost inevitable. If investors are to get any real return on their money, the interest rate must exceed the inflation rate.

Is it possible to have high interest rates and high inflation rates also?

It is possible. Interest rate is just a monetary policy tool that Central Bank can use to target or control price level. We cant say lower interest rates=higher inflation, higher interest rates=lower inflation but what we can is %26quot;raising ineterest rates%26quot; help lower inflation and vice verca.

Is it possible to have high interest rates and high inflation rates also?

Yes, it is possible to have high inflation and high interest rates. I think this actually happened during the %26#039;70s in the US.

High inflation can put pressure on interest rates to rise. Lenders want to make sure they don%26#039;t lose money on their investments. For example, if the inflation rate is 8% a year and the interest rate is only 4% a year, that will discourage people from lending money (thereby putting upward pressure on interest rates because there is less money out there available for borrowing) because instead of gaining 4% a year in interest by lending money, they would actually be losing 4% due to the inflation rate being greater than the interest rate. That sort of difference between the interest rate and inflation would also encourage people to borrow because the money they borrow would be worth more than the money they have to pay back (and a greater demand for borrowing puts upward pressure on interest rates).

Basically, inflation can make anything more expensive, and that includes the cost of borrowing money.