3.4. Central banks
The activities of central banks is the most influential factor in determining rates. Central Bank monitors inflation rates, currency and interest rates by trying to regulate them.
There are three main interest rates:
1. Discount Rate - Discount rate. The interest rate under which the Central Bank lends to commercial banks.
American and British rates are quite high, so they are showing great interest of foreign investors.
2. Rate - Repo rate. The interest rate applied in the operations of the Central Bank to commercial banks and other lending institutions in the purchase (accounting), government treasury bills. CB thereby regulates the market of loan capitals. Fed Funds (rate Repo USA).
3. Lombard rate - Lombard rate. The interest rate applicable securities secured by real estate gold values in issuing loans to commercial banks.
In the analysis of the news regarding interest rates, should be guided by the following rules:
• When the interest rates increased business activity and increased inflation. Lower interest rates lead to a cheapening of the currency.
• Increase in interest rates leads to a reduction in business activity, lower inflation and appreciation of the currency.
In addition to the interest rate in the present conditions of the Central Bank may korektirovat rate of national currency by buying and selling foreign currency. This method of influence on the currency is called intervention. In order to reduce the exchange rate, securities market throws a certain amount of money in local currency. Conversely, a rise in price for its securities repurchase the currency market throwing their foreign exchange reserves.
The most influential central banks:
The European Central Bank (ECB)
The U.S. Federal Reserve (Fed)
Bank of England (Bank of England - BOE)
Bank of Japan (Bank Japan - BOJ)
<<The exchange rate at purchasing power parity
