An interest rate is the percentage charged or paid for borrowing or lending money. It represents the cost of borrowing funds or the reward for saving or investing capital. Interest rates are usually expressed as an annual percentage of the principal amount. 

Interest rates influence spending, saving, and investment decisions across the economy.

Central banks set key policy rates that affect the overall level of interest rates in an economy. When interest rates are low, borrowing becomes cheaper, which can stimulate spending and investment. When rates are high, borrowing becomes more expensive, which can slow economic activity and reduce inflationary pressure.

Interest rates also affect financial markets. Higher rates can reduce the attractiveness of stocks and increase bond yields, while lower rates can encourage investors to seek higher returns in riskier assets. Changes in interest rates therefore play a central role in economic growth and market movements.

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