Interest Rate Forecast

By: EconomyWatch   Date: 14 October 2010

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Interest rate forecast  is prediction that determine the future course of interest rates. Forecasts can be made for both the short and long term. Forecasting involves extensive analysis of statistical and economic data and is complex, since the economy is never stable.

How is an Interest Rate Forecast Made?

Economic experts, particularly macroeconomists, analyze several factors to arrive at an interest rate forecast. Factors that impact an expert’s predictions include:

  • Historical statistics: The study of economic history is the most basic technique used for forecasting interest rates. Economists study periods when interest rates were in a similar range and then compare economic situations of that era with the present day economic environment. Econometric techniques are used to model financial data and understand the rate patterns.

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  • Economic climate: Experts consider the economic climate and business cycle of the country to determine future interest rates. The economic climate is determined through the current rate of inflation, consumer price index (CPI), gross domestic product (GDP), employment cost and productivity, value of the domestic currency in the international market and foreign reserves.

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