Sure, there are some effects that come to play. - Lets say you have a lot of euro. Interest rate is 0 and the US interest rate is 2%. Then you might think of s

Sure, there are some effects that come to play. - Lets say you have a lot of euro. Interest rate is 0 and the US interest rate is 2%. Then you might think of selling euro and buy dollar to get the 2%. Especially if you think that euro/usd will decline further. - Now let's say your interest rate is even higher now at 10%. A lot of houses in Germany produces something like 3% yearly revenue. So now you might start selling the houses with the same argument, since you could get 10% risk free compared to 3%. Housing prices go down, if you can't raise the rent.. Same effect on business that are doing just small revenue compared to the capital. It doesn't make sense to operate them. They quit -> consume less resources. - Other effects like people spend less since saving becomes a bit more interesting. Firm's invest less, since the investment has to beat the interest rate. PS: All that leads to a stronger currency. So your imports become cheaper and that helps a lot to fight inflation.