Page 2 of 12  the lender gets paid some insurance against the borrower defaulting. Therefore, if you think inflation will be 10%, you will start with a 10% interest rate and then add these terms and risk premiums. These premiums are normally quite small, unless uncertainty and/or risk are very high. The largest part of the interest cost is inflation.
This implies that lowering inflation is the easiest way to lower interest rates. Consider another example. The South African government borrows in both local and foreign currency. When it borrows for 10 years in rand, it pays an interest rate of close to 9%.