In some cases, financial institutions may refuse to lend even if a borrower is willing to pay a higher interest rate.
Given the facts I have described, when assessing the effects of monetary policy and making policy decisions, it is vital to examine thoroughly not only the appropriate level of the policy interest rate but also the overall financial environment, which is suggested by the shape of the yield curve, the relationship between the level of the policy interest rate and the potential economic growth rate as well as the expected inflation rate, various credit spreads that are added onto benchmark interest rates, and the lending stance of financial institutions.