on 12/07, the ECB raised interest rates by .25%. I understand that increasing rates has a positive effect on the nation's currency as it makes that currency more valuable. However, I couldn't help thinking that if interest rates are higher, the economy should slow down as that's the main purpose of raising rates is to control inflation. This notion contradicts each other has if the cost of money is higher, how can businesses profit and in the end, how can currency be up if businesses are not profiting?
Are short term raising interest rates bad for currency and when the economy catches up with the new higher rate, and continues to prosper higher, then a higher rate will be needed again so it's like a cycle? So looking at the long term, a raising trend of continous higher interest rates is good for the economy but right when the interest rate hike is released, the nation has to adapt to it?
Are short term raising interest rates bad for currency and when the economy catches up with the new higher rate, and continues to prosper higher, then a higher rate will be needed again so it's like a cycle? So looking at the long term, a raising trend of continous higher interest rates is good for the economy but right when the interest rate hike is released, the nation has to adapt to it?