Roy Walker IFA - Financial Adviser In Dubai

Definitions of the various types of interest rate Central bank rate - is the one most generally referred to in the financial press when they talk about the ‘bank rate’ or ‘interest rate’ without further specification (except for the USA, see below). Set by policymakers and usually the key rate upon which others are based. Also called the ‘base rate’ in the UK, ‘cash rate’ in Australia and New Zealand, and ‘discount rate’ in the USA. It’s the rate at which the central bank lends money overnight to commercial banks. Federal funds rate - specifically in the USA, policymakers at the Federal Reserve use a slightly different mechanism for influencing the nation’s interest rates. The federal funds rate is the overnight rate at which banks lend reserve balances to each other. The Federal Reserve Open Market Committee (FOMC) sets a target for this rate and implements monetary policy through ‘open market operations’ - buying or selling government securities (Treasury bills and bonds) in the op...

(Reminder: Key interest rate definitions ) Since we’re all waiting to hear what the Federal Reserve will do with interest rates later today, I thought it would be helpful to take a quick glance at some other major economies. The most likely long term trend for global interest rates is persistently low Long term interest rates have been falling for thirty years, and a bunch of people way smarter than me think this is more likely to continue than otherwise. Here are two fascinating reports: Secular Drivers of the Global Real Interest Rate December 2015, a staff working paper from the Bank of England. Long-Term Interest Rates: A Survey July 2015, from the Executive Office of the President of the United States, no less. In case you don’t want to spend a weekend reading them, here are some juicy bits… First, from the Bank of England research: “ Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both a...