According to Keynes, interest is a payment for liquidity preference. This means that interest is the price that people are willing to pay to hold money rather than invest it. When people are more willing to hold money, interest rates will go up. When people are less willing to hold money, interest rates will go down.
Consumer’s preference is the desire of consumers to buy goods and services. Producer’s preference is the desire of producers to make goods and services. State Bank’s preference is the desire of the central bank to control the money supply.
All of these factors can affect interest rates, but liquidity preference is the most important factor in the short run. In the long run, inflation and economic growth are also important factors.