What happens when raise the rate
So we've figured out what the key rate is, now let's find out what happens when it goes up, because it does so often.
When the Central Bank raises it, it raises the cost of lending for commercial banks. They can pass those costs on to borrowers, i.e. firms and individuals. As a result, there is a decrease in lending, which slows down the economy.
Again, an increase in the key rate increases investor returns on bond investments, which can lead to less demand for stocks and higher bond prices. Ultimately, this has the effect of driving down the stock price in the market.
