What is the Market Interest Rate?

The market interest rate is the prevailing interest rate offered on cash deposits. This rate is driven by multiple factors, including central bank interest rates, the flow of funds into and out of a country, the duration of deposits, and the size of deposits. In addition, lenders will charge a higher interest rate when there is an expectation of higher inflation over the term of a loan. This is because lenders will be paid back with money that is worth less, which reduces their return on funds loaned. When the expectation for more inflation is substantial, lenders may insist on substantial increases in the interest rate.