TODAY.AZ / Business

FRS keeps key interest rate steady

22 September 2016 [15:42] - TODAY.AZ

By Azernews


By Nigar Abbasova

The US Federal Reserve System (FRS), which performs a role of the national central bank in the USA, kept the base interest rate unchanged, maintaining the low level, they have been at since December 2015.

FRS opted to keep rates between 0.25 percent and 0.5 percent, which became the sixth consecutive decision, in which Federal Oil Market Committee (FOMC) left the rates unchanged.

However, the authority strongly signaled it could still tighten monetary policy by the end of this year should the labor market improved further.

The Fed's statement indicated it could support a hike this year, saying that the case for an increase in the federal funds rate has strengthened, and the economy was a bit stronger after some shaky results.  However, the central bank said it wanted to see more improvement before raising rates, and it would wait for more progress toward its objectives.

The Committee expects that gradual adjustments in the stance of monetary policy will lead to the expansion of economic activity, while labor market will strengthen further.

Experts did not expect any change in rates, saying that macroeconomic statistics, as well as lack of a significant growth in the U.S. level of inflation forced the central bank not to make any changes in its monetary policy. Only 6 percent of those surveyed expected the Fed to raise rates, with the majority believing the change may wait until December.

Change may come soon

FOMC raised its key interest rate from a range of 0% to 0.25% to a range of 0.25% to 0.5% in December 2015 while the previous rise was fixed in June, 2006. Most experts say that FRS will surely increase its interest rate in one of the next meetings, which are scheduled for November 1-2 and December 13-14.

The Fed in December signaled that four rate increases might be in 2016, but the expectation was scaled back in March due to a global growth slowdown, financial market volatility and concerns about inflation in the USA.

Influence on oil prices

Interest rate, which is considered to be a major factor influencing currency value also influenced the rate of the U.S. dollar. The dollar weakened after the decision, which in turn also buoyed prices for dollar-denominated crude.

World oil prices accelerated the growth following the decision, which ended weeks of confusion for traders. 

Benchmark Brent crude added some 95 cents up to $46.83 per barrel, while U.S. West Texas Intermediate (WTI) crude futures recorded an increase of 2.9 percent, to stand at $45.34, Reuters reported. The price of a barrel of Azeri Light crude oil fell $0.95 to trade at $46.78 on the world markets.

Influence on manat

Higher interest rates in a country increase the value of that country's currency as compared to countries offering lower interest rates.  

Interest rates can be a primary factor that influences exchange rates, the final determination of a currency's exchange rate, however does not always follow simple straight-line calculations, but becomes a result of a number of interrelated elements that reflect the overall financial situation of a country.

Exchange rate regime applied in Azerbaijan stipulates that the USD rate depends on demand-supply ratio in the currency market, not the FRS decision, therefore key interest rate is not the most significant factor affecting the change in the national currency of Azerbaijan.

The official exchange rate of Azerbaijan’s national currency, the manat, against the US dollar was set at 1.6331 for September 22, said Azerbaijan’s Central Bank (CBA) on September  21. Thus, manat’s rate against the U.S. dollar remained unchanged compared to the rate on September  21.

URL: http://www.today.az/news/business/154400.html

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