Annexe I: Basic concepts of macroeconomics
At the national level
The term ‘interest rate’ refers to the percentage difference between the amount of money borrowed now, and the money paid back at a future date. For instance, if you receive a $1,000 loan from a bank with 15% interest rate per year, you’ll need to pay back $1,150 in a year. The higher the interest rate, the more expensive it is to borrow money.
Interest rates are closely linked with inflation. Similar to what we discussed above, there is a difference between nominal interest rates and real interest rates. The real interest rate per year is equal to nominal interest rate (per year) minus inflation rate (per year). For example, imagine an economy with a 10% inflation rate. In this economy, if a lender gives a female entrepreneur a $1,000 loan with 12% interest rate, 10% of the money that the borrower pays back in interest is effectively zeroed out due to inflation and the real interest rate ends up being 2%.
In UN Women’s brief Why Macroeconomic Policy Matters for Gender Equality, it is argued that, because countries only and narrowly focus on keeping the prices low through lower interest rates, this in turn “slow(s) economic activity and lower(s) the demand for labour by making credit more expensive and less accessible. This narrow approach can increase gender inequalities — for example, when women are more likely to lose their jobs than men if the economy slows in response to monetary policy choices or when women work in sectors that are more sensitive to reductions in domestic spending.”