Last week, Egypt’s Central Bank decided to hike interest rates to slow down inflation and curb a sliding pound.
But what are the economics behind the move? What does it really mean to raise interest rates and what impact does this have?
Contributor Isabel Esterman has drawn up a genius cartoon to explain all.
She says that this is, of course, hugely over-simplified. In order to keep it at a manageable length, the cartoon glosses over things like how fractional reserve lending actually adds to the money supply, repo and discount rates (we don’t need to get that technical anyway…), as well as examples of when these theories don’t work – all topics for another day.
Still, we hope this is enough to make people feel more confident tackling something like the CBE Monetary Policy Committee’s most recent press release.