Who are the gainers and losers from the interest rate hike?
Borrowers will be losers in the immediate future because loans will become more expensive. In the longer run, when inflation comes down, everyone, especially the those with fixed salaries, who feel the pinch of inflation will gain from lower price rise. The most important benefit of low and stable inflation is higher private investment with a lower incidence of mistakes. When inflation is low and predictable, there is better certainty about the future in the mind of an investor. Greater certainty allows people to make better decisions about investment. The international evidence shows that when inflation is low and predictable, the fluctuations of GDP growth are reduced, which benefits everybody. The path to stability of the macroeconomy lies through devoting the entire power of monetary policy to one task: that of stabilising inflation.
