Pronunciation ChallengeThe Economist: Interest Rate vs Inflation

I think it's not bad for the first time ?

[Transcript]

Hey folks, we’ll be discussing the relations between interest rates and inflation today. They’re basically partners, one will most likely show up along with the other. When central banks raise interest rates, it's big news. It can send ripples across the whole economy by bringing down consumer confidence, which results in fewer jobs and lower wages, and cause stock prices to plummet. You might wonder, why do central banks raise interest rates? Well, let's start with the basics. If you borrow money, you'll have to pay back a little extra to make it worthwhile for the lender, and the percentage of that little extra money is called “interest rate”.

On the contrary, if you want to save money, then a high interest rate means you can earn more on your savings in the bank. You can see it as a reward for leaving money in your account. The size of that reward depends on the circumstances. Different banks have their own commercial rates, which are all influenced by the interest rate that the central bank sets. When central banks raise interest rates, they're trying to control inflation⏤how fast prices rise for everyone. If inflation is seen as too high, that's when banks raise interest rates.

You might wonder, how does that work? Well, a rise in interest rates from a central bank means that a commercial bank will earn more on its reserves. They might make more from keeping their money in a central bank than lending it out. So, if they decide to lend their money out, they’ll also raise the interest rate to make it worthwhile.

When interest rates rise, then businesses will find it more expensive to borrow and invest. That generally indicates less economic activity; it might mean fewer jobs are created. Fewer jobs and lower wages could mean less money for households, and consumer confidence might suffer, which also means less spending.

Central bankers would agree that raising interest rates can be painful; slowing down the economy is not fun. But it's worth it eventually. It's worth it to get low and steady inflation so that, in the long run, the society suffers less from the impact and that we won’t have to think about it every day.

[Sentence of the day]

A central bank is like a bank for banks; just like you and your savings account, banks also earn interest when they leave money with a central bank.

[Vocabulary words]

1. central
the center or most important part of something
controlled or organized in one main place
i.e. The Central Bank of Taiwan has just raised interest rates again.

2. earn
to make; to receive money as payment for work that you do

i.e. I earn one million U.S. dollars a year. Yeah, right.

3. interest
money that is charged by a bank or other financial organization for borrowing money

i.e. Interest charges on an overdraft are usually quite high.


Alright, that’s all we have time for today.
It seems that the only interest a bank has is the interest.
Hope you’ve learned something from today’s story.
Be sure to check out the video for more.
Today’s episode is brought to you by The Economist.
This is Ken Miao. I’ll see you again next week.

Day 278

Day 124.