Fiscal balance such as reduction in the fiscal deficit and Current Account Deficit impacts the interest rates indirectly when the Monetary Policy is setting out the target interest rate it has to consider all these Macroeconomics conditions.
The effects of fiscal improvements on interest rate are multidimensional relationships and cannot be explained in a pargraph.
Depend on goals of monetary policy that can vary according to country macroeconomic profile.
If the main goal of central banks is to achieve and maintain financial stability, and interest rates for the central bank are one of the most important traditional tools to achieve this goal, then improving financial stability does not affect interest rates for the central bank as long as the bank considers financial conditions in the field of stability.
The central bank’s interest rates are influenced by several factors such as inflation, economic growth, and fiscal balance. Fiscal balance refers to the difference between government revenue and expenditure. If the fiscal balance improves, it can lead to a decrease in interest rates as it can reduce the government’s borrowing needs and increase investor confidence in the economy. However, other factors such as inflation and economic growth can also influence interest rates
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