Interest Rate Volatility Definition

Interest Rate Volatility Definition
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Significance

Wild swings in interest rates make financial planning difficult for all players in the economy. Home buyers tend to wait for a downswing in general interest rates, because mortgage rates usually decline in lockstep with general rates in the economy. This slows down home sales when rates are high. Large companies similarly tend to hold off on borrowing and postpone key investments while they assess the financial landscape. Banks find it very hard to plan and forecast profits if the rates at which they can borrow and lend are highly variable. Policymakers therefore watch interest rate volatility closely and take measures to curb excess volatility.