The economy

Interest Rate

The price of borrowing money, shown as a percentage per year.

Why does it matter?

It affects how much companies pay on their debt, and how much savings and bonds pay compared with shares.

How do I read it?

Central banks set a key rate, the federal funds rate in the U.S. and the Selic in Brazil, and often raise it to fight inflation. Higher rates tend to weigh on share prices, especially those of fast-growing companies.

Example

A company with $10 billion of debt that refinances it from 3% to 6% goes from paying $300 million of interest a year to $600 million, leaving $300 million less profit.