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I don't really understand world interest rate fluctuations, perhaps someone could explain as simply as possible.

 

The Bank of Thailand unexpectedly cut the key interest rate to 1.75% on Wednesday, I also read somewhere that the US is about to increase the interest rate.

 

Is this good or bad for Thailand ?

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Here in the US, it was reported that unemployment rate reached a low of 5.5%...good news? Well, the stock market dropped due to

the news because it might prompt the Fed in raising interest rates earlier than expected, in June instead of Sept/Oct.

 

Since the reported unemployment news, the stock market has been retreating.

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Below is from today, New York Times article...

 

 

HONG KONG — Central banks across Asia are racing to cut interest rates, but they may not be doing it fast enough to stave off economic malaise.

 

The problem is weak inflation. Policy makers appear to have been surprised by how slowly prices are rising, and the slowdown is starting to weigh on economic growth across the region. If prices drop for too long, companies invest less and people’s pay shrinks.

 

Asia is not experiencing such outright deflation yet, but the risks are rising. Inflation began weakening last year in the region, with the drastic drop in the global prices of oil and other commodities. Those declines now appear to be spreading throughout the Asian economy, and growth is slowing as a result.

 

“Asian central banks in general have been very relaxed in recent years about the economic outlook and risks around price stability,†Frederic Neumann, a head of Asian economic research at HSBC, said in a telephone interview on Thursday. “China is an obvious example where deflation pressures have taken hold, but if you look everywhere from Korea to Southeast Asia, inflation is coming off much more rapidly than expected.â€

 

 

Central banks in Asia have been lowering rates in recent months, but not quickly enough to offset deflation. Interest rates, when deflation is taken into account, are rising as a result.

 

 

South Korea’s central bank on Thursday reduced its benchmark rate to a low of 1.75 percent, a day after Thailand reduced rates for the first time in a year. Last week, India lowered its benchmark interest rate by 0.25 percentage points to 7.5 percent, with the central bank’s saying the cut, its second between scheduled policy meetings, had been tied to easing inflation and weakness in the economy. In recent months, China has cut interest rates twice and freed its banks to lend more.

 

The rush to lower rates in Asia is notable because the region is breaking with tradition and moving in a direction opposite to that of the United States. With the American economy rebounding smoothly and the job market appearing increasingly healthy, the United States Federal Reserve is expected to begin raising interest rates. In previous years, many central banks in Asia have tended to align their monetary policy with the Fed’s.

 

That they are now moving in the opposite direction “brings home the strength of the disinflationary force that’s gripping Asia,†Mr. Neumann said. “It’s relentless.â€

 

In China, data released this week showed a sharp deceleration in the already slowing economy, raising the pressure on policy makers to do more to stimulate growth. But China’s central bank governor, Zhou Xiaochuan, defends his response.

 

“There must be prudence,†Mr. Zhou said to reporters in Beijing on Thursday. The bank’s actions so far, he said, were “maintaining appropriate liquidity in the financial markets, and they haven’t overstepped the bounds.â€

 

His approach, he added, “remains unchanged, as steady and neutral.â€

 

In China’s case, the picture is complicated because the country is still moving forward with several overhauls to its financial system. Mr. Zhou said Thursday that the government would introduce the country’s first deposit insurance program in the coming months.

 

Continue reading the main story Continue reading the main story

 

Continue reading the main story

 

He also reiterated a pledge to deregulate interest rates charged by the country’s banks. Limits on some of those rates have already been lifted, although deposit rates on savings accounts remain capped.

 

Photo

 

 

 

China’s central bank governor, Zhou Xiaochuan, defended his deliberative stance. Credit Feng Li/Getty Images

 

In statements released after they moved to cut rates, the central banks of South Korea and Thailand cited the slowdown in China — previously the main engine of growth in the region and a major trading partner of both countries — as a reason for their decisions.

 

There are signs that China’s own recent easing actions, which since November have included two interest-rate cuts and a lowering of the amount of cash that banks are required to keep on reserve, have resulted in more lending. China’s new credit growth in February was stronger than economists expected, with new local-currency loans rising 14.3 percent from a year earlier to 1 trillion renminbi, or $165 billion, according to figures released on Thursday.

 

But in China, as with elsewhere in Asia, being too neutral for too long may have led to problems. “Intensified policy easing can help cushion, but unlikely reverse, the downtrend in China’s real economic growth,†Tao Wang, the chief China economist at UBS, wrote Thursday in a research report.

 

Part of the problem is that the real cost of credit in China, after factoring in inflation, remains persistently high despite the recent easing measures.

 

Li-Gang Liu, the chief economist for greater China at the Australia and New Zealand Banking Group, estimates that real borrowing rates for Chinese companies are more than 10 percent a year. That is based on an average bank lending rate of around 7 percent, and includes producer price inflation of around 4 percent.

 

Many companies in China have turned to even more expensive borrowing from the country’s sprawling shadow banking sector, which includes players as diverse as trust companies and online lenders. But authorities, worried over spiraling amounts of loosely regulated credit, have been seeking to curtail such lenders.

 

“Bank lending is getting more important as shadow banking activities have been cracked down on,†Mr. Liu wrote in an email. “Banks have become more risk averse in lending to trust companies, and shadow banking financing has dropped.â€

 

And then there is the uncertainty that could be introduced by the Fed. Rising interest rates in the United States and falling rates in Asia raise the risk that Asian nations could begin to see a shifting away of foreign currency. In China, there have been signs in recent months that this is taking place, as locals sell renminbi for dollars and move money offshore.

 

Mr. Zhou, the Chinese central bank governor, said this was to be expected if the Fed raised rates. “People in the financial markets may certainly consider now whether to buy more dollars, or to have some dollars stored abroad.â€

 

“But the signals from the U.S. Federal Reserve are that this move will be quite cautious and prudent,†he said of the anticipated rate increase. “So from what we can see for now, we believe that this doesn’t constitute a huge threat.â€

 

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