Cutting interest rates show economy is good, right?

Cutting interest rates show economy is good, right?

Finally, we have this piece of news. If you have been following the interest rate movement in the US, this is how it looks like.

Yes, it has been increasing and increasing and increasing within just a period of 2 years. From close to zero (0.25 percent), it has risen to current 5.5 percent. If you know a country is about to keep increasing their rates, institutional investors would be attracted to their currency, especially if they are the largest reserve currency in the world. Even if they run deficits and they need to keep borrowing money to pay off their debts which now stands at US$34 trillion.

The never ending increase of rates may be coming to an end

This is what recent reports are saying:

What happens when a country cuts its rates?

It could be because the country is no longer facing inflation threats. Thus, it could afford to push the economy to move faster. Lowering rates meant that more people may be tempted to take out their money and invest it versus keeping it in the bank. Companies may be pushed to invest since the cost of borrowing is also lower. In other words, pro-growth for the economy when central banks reduce the rates which is what may happen to the US soon, September that is.

Does it help Ringgit when the US cuts rates?

Briefly, it does look like ringgit will benefit if everyone is cutting their rates or is showing that they are about to cut their rates.

Rate cutting is good lah. More growth in the advanced world means more orders from them too

Malaysia exports more than we import. So, we have an account surplus which should also mean the currency should appreciate but somehow it does not. Anyway, the more demand from the world with a growing economy, the better it is for an economy like Malaysia’s. We can just keep exporting even more as long as we remain competitive and the world continues to grow.

Let’s wish for some good times ahead. I will definitely be wishing for one. Cheers.

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