Fed: Cuts interest rate to virtually zero

[MiratKad]

BBC NEWS | Business | US rates slashed to nearly zero

Muda wa kukopa umefika. Sijapata kusikia hii kitu. Bongo bado tunashikilia double-digit Interest rate?

The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession.

In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further".

It predicted that rates would stay at the current exceptionally low levels "for some time".

It added that it was considering ways it could spend money on supporting the economy and credit markets.

Analysts said that the key rate is now virtually zero.

"Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America.

He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.

The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans.

Postpone purchases

The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds.

The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.


The Federal Reserve promised to use "all available tools"

Deflation becomes more of a risk as interest rates approach zero.

It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further.

Quantitative easing is, "just another word fr the central bank injecting so much money into the system that a good deal of it is passed onto households and businesses at a reasonably low interest rate," Mr Schmieding explained.

The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007.

Luke-warm reception

It is the lowest the central bank's key rate - the target rate for banks to charge to lend to each other overnight - has been since records began in 1954.

The decision received a luke-warm reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points.

"You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington.

"On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession."

Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November.

Government help

President-elect Barack Obama said in a speech on Tuesday that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool.

"We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates," he said.

"That's why the economic recovery plan is so absolutely critical."

He has undertaken to create at least 2.5 million jobs by 2011 as well as launching a programme of improvements to the country's infrastructure.

 

[Zungu Pule]

What does it mean when the Federal Reserve or Central Bank for the case of Tanzania cut s interest rate? What is interest rate? Tafadhali wachumi ninaomba kuelimishwa.

 

[BAK]

Unapochukua mkopo toka benki kama unataka kununua nyumba, gari au mtaji wa biashara benki za kibiashara hukutoza riba ambayo ndiyo kama faida yao kwa mkopo uliochukua toka kwao. Mabenki haya yanakopa toka federal reserves kwa hiyo riba ya 0.25% lakini wao (mabenki ya biashara) wanapokopesha wateja wao wanaongeza kama sikosei 2% au 3% hivyo mkopaji atachajiwa riba ya 2.25% au 3.25% lakini kwenye mikopo ya magari kuna makampuni mengi ya magari kwa mfano Toyota, sasa hivi yanatoa kikopo kwa wateja wao uli kuvutia wateja zaidi.

Hivyo kutokana na kuyumba kwa uchumi sasa hivi baadhi ya makampuni hayo ya magari hayatozi chochote kwa mkopo wanaompa mteja. Kama unachukua mkopo wa $20,000 basi unarudisha $20,000 kwa miezi 36 au hata mpaka miezi 60 kwa baadhi ya makampuni.

Uchumi unapoyumba Federal reserves hupunguza riba ili kuwapa wananchi na makampuni makubwa na madogo motivation ya kukopa ili kusaidia kuinua uchumi. Makampuni kwa kuona gharama za mikopo zimekuwa ndogo sana basi hukopa mapesa ili kupanua biashara zao ndani na nje ya nchi kwa kufanya hivyo wanacreate employment na kuusaidia uchumi unyanyuke tena na kuwa katika hali nzuri baada ya kipindi kifupi. Wananchi nao hukopa kuboresha nyumba zao ama kuziongeza au kuzifanyia repairs mbali mbali, kununua furniture mpya na hata magari mapya.

Miaka miwili ijayo tusishangae kusikia uchumi wa marekani kwa quarter moja umekuwa kati ya 8% mpaka hata 10% kutokana na economic activities mbali mbali zitakazosababishwa na mikopo yenye gharama ndogo.

 

[Zungu Pule]

Asante sana. I will consult "Wiki" for more details.

 

[MgonjwaUkimwi]

What does it mean when the Federal Reserve or Central Bank for the case of Tanzania cut s interest rate? What is interest rate? Tafadhali wachumi ninaomba kuelimishwa.

Sasa ili tuwe kurasa moja katika kuelimishana Zungu Pule, tuanzie kwa kuangalia nchi yetu. Central bank of Tanzania (BoT) ndio inayoongoza mawimbi ya kupwa na kujaa kwa fedha katika uchumi wetu. Mawimbi haya ndiyo yanayoashiria mwenendo mzima wa shughuli za uchumi. Kwa mantiki kwamba fedha zikijaa kwenye uchumi wetu sambamba na shughuli za uzalishaji kunakuwa na maendeleo ya kiuchumi. Hii ndio hali ambayo BoT inafurahia. Lakini kama kiwango cha fedha kitaongezeka bila kuwiana na uzalishaji kunakuwa na mfumuko wa bei unaoambatana kushuka kwa shughuli za kiuchumi. Kadhalika kiwango cha fedha nchini kikipungua mno shughuli za kiuchumi zinapungua mara dufu. Hii ndio hali ambayo BoT haipendi itokee. Sasa kazi kubwa ya BoT ni kuhakikisha kwamba athari za kujaa na kupwa kwa fedha katika uchumi inarekebishwa.

Shughuli za kurekebisha kupwa na kujaa kwa fedha kunafanywa kwa njia mbali mbali. Moja ya njia ambayo mara nyingi inapendelewa ni kupunguza riba za mkopo (interest rate). Ikumbukwe kwamba BoT ni benki ya mabenki na taasisi nyingine za fedha; hivyo basi BoT ndio inayozikopesha benki za bihashara na taasisi nyingine kubwa za fedha. Sasa inapotokea kwamba uchumi wa Tz unayumba na kwamba matumaini ya kurudia katika viwango vya awali ni madogo, BoT inabidi ipunguze riba ya mikopo yake ili benki za biashara na taasisi za fedha zikope kwa gharama ndogo na hivyo kuwekeza zaidi katika uchumi. Sasa benki za biashara na taasisi za fedha zinapopata mikopo ya riba ndogo nazo zitatoa riba ndogo kwa wawekezaji wa kawaida na hivyo kuhamasisha shughuli za kiuchumi.

Sasa inapotokea kwamba fedha zimejaa mno bila kuwiana na shughuli za uzalishaji/uchumi manake BoT inakutana na mawimbi ya fedha kujaa na hivyo itaongeza riba ya mikopo ili kuzifanya benki za biashara na taasisi zisitishe kukopa. Benki na taasisi zinapositisha kukopa kutoka BoT manake zitakuwa zinatunza fedha BoT na kadhalika wawekezaji wakawaida watatunza fedha zao kwenye benki zao kwa kutegemea riba kubwa. Hii inapunguza athari za fedha kujaa.

Nadhani hapa nimekupa mwanga. Kwa kuhitimisha interest rate ni riba ya mkopo, na BoT inapopunguza interest rate inashawishi mabenki na taasisi za fedha zikope kwa wingi, na zinapokopa kwa wingi na kwa riba ndogo zinachochea shughuli za uchumi kwani zitatoa mikopo ya riba ndogo kwa wawekezaji wakawaida, na wawekezaji hawa wakipata mikopo ya riba ndogo watawekeza kwa wingi na uchumi utapanuka.

Kama una swali jingine niko tayari kukujibu kadri niwezavyo. Alamski.