Interest Rate is the percentage charged by a lender or financial institution on the amount borrowed or earned on investments over a specific period. It represents the cost of borrowing money or the return on lending or saving. Interest rates play a crucial role in shaping economic activity, influencing consumer spending, business investment, inflation, and overall growth.

There are two main types of interest rates ó nominal and real. The nominal interest rate is the stated rate without adjusting for inflation, while the real interest rate reflects the actual purchasing power of money after considering inflation. For example, if the nominal rate is 8% and inflation is 5%, the real rate is 3%.

Central banks, such as the Reserve Bank of India (RBI), determine benchmark policy rates like the repo rate and reverse repo rate. Changes in these rates directly impact the broader economy. When the central bank raises interest rates, borrowing becomes costlier, which can help control inflation but may slow down economic growth. Conversely, when rates are lowered, borrowing becomes cheaper, encouraging spending and investment but potentially increasing inflation.

For individuals, interest rates affect loans, EMIs, savings accounts, fixed deposits, and credit card costs. For investors, they influence the pricing of bonds, equities, and real estate. Typically, bond prices move inversely to interest rates ó when rates rise, bond prices fall, and vice versa.

In summary, understanding interest rates is essential for making informed financial, investment, and borrowing decisions. They serve as a barometer for economic health, guiding both policymakers and investors in managing risks and maximizing returns.