Ben bernanke today announced that to control inflation the fed bank will increase the interest rate. To understand what affect this will have we have to look at both the short term and long term perspectives.
First the short term
1. Because Int. rate have been increased to control inflation, the first entities which would be affected are the businesses. As increased interest rate would make borrowing expensive, less number of firms would be interested in going for credit. So, stocks of such companies fell.
2. Obviously the inflation would be controlled
3. For those who invest in dollar securities, their returns would increase. So in a way there is more demand for dollar. Dollar has therefore strengthened against other currencies.
Long term perspective
Impression that inflation will be controlled and business will be secure in the future, the risks have reduced. Due to this price of 10 year bond has reduced
Effect on oil prices
by increasing interest rate, borrowing dollar has become difficult. So demand for the dollar commodity - crude oil has reduced a bit and hence oil prices have fallen
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