Policy Decisions & Cycles
Why do central banks raise interest rates?
Central banks raise policy rates when they judge that demand, inflation pressure or inflation expectations require tighter financial conditions. Higher short-term rates increase the cost of money across deposits, loans, funding markets and asset valuations.
How to read it
The objective is not simply to make borrowing expensive. It is to slow the transmission of excess demand into prices while keeping inflation expectations anchored.
Watch the policy-rate path, front-end OIS pricing, the 2s10s or equivalent curve shape, inflation expectations and the central bank’s own communication. Together they show whether markets are repricing the current decision, the next cycle, or the credibility of the framework.
Central-bank effects are regime-dependent. The same policy action can produce different market outcomes when inflation, growth, positioning or prior expectations differ.