Central banks, such as the US Federal Reserve and the European Central Bank, set short-term interest rates to keep inflation close to a target (often about 2 %). Raising rates cools the economy and inflation; cutting them supports borrowing and growth.
How rates affect shares
Higher rates make borrowing more expensive for companies and consumers, which can reduce profits. They also make safe investments such as bonds and savings accounts more attractive, so investors demand a lower price for shares. Companies whose profits lie far in the future - many growth companies - are usually hit hardest.
What to watch
Central bank meetings, inflation figures and the yield on government bonds. Markets often move on expectations about future rate decisions rather than on the decisions themselves.
This content is general information, not investment advice.