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U.K. banks raising mortgage interest rates…cause inflation hasn’t fallen as much as expected. Can anyone do an ELI5 as to why? (lemm.ee)
submitted 6 months ago by SouthEndSunset@lemm.ee to c/finance@beehaw.org
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As the title says, numerous banks in the U.K., maybe across the world, are raising interest rates on mortgages, and the given reason is cause inflation hasn’t fallen as much as expected. Can anyone give me a basic inflation, other than greed, as to why they’d do this?

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[-] deegeese@sopuli.xyz 11 points 6 months ago

Government lends money to banks. Banks lend money to homeowners.

When inflation is too high, the government charges banks higher interest, so banks charge customers higher interest.

Fewer people take out loans, so there is less cash circulating in the economy, which dampens inflation.

At least that’s how it’s supposed to work.

[-] shortwavesurfer@monero.town 2 points 6 months ago

If it did work that way, it might be all right. But you're forgetting that the banks only have a like 5% reserve requirement. So for every thousand dollars they get in the bank from an account, they can lend out 950 more. And they can do this again and again until it hits zero, which is about 9 times. So you end up turning $1,000 into About 9,000.

[-] deegeese@sopuli.xyz 4 points 6 months ago

The real world is far more complicated and fractional reserve is just one small part of it.

this post was submitted on 29 Apr 2024
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