Financial Market Issues: Interest Rates
Interest rates are so curious.
Interest rates are considered to be a very essential component of the fundamental analysis. So let’s consider this matter thoroughly. The influence of interest rates on the financial market is manifested mainly in the process of bank operations to regulate the current liquidity of the banking system. Conducting operations in support of liquidity or withdrawal the bank conducts transactions with other banks to set interest rates and affects the interest of the latter in the conduct of the operation, which in turn has an effect on the value of resources in the banking system and the activity of banks in conducting operations with financial assets. The interest rate fluctuations have got a great impact on the economy as a whole. The bank pays close attention to managing interest rates and their structure is reviewed at least once a week. The main governing body decides to modify the interest rate. As a rule it’s the Committee of Operations of the central bank.
To analyze the nature of the impact of interest rates on transactions you should draw the line between the rates of support and withdrawal of liquidity, since they are of multidirectional nature as for their further impact.
By adjusting interest rates on its operations, the bank adheres to certain principles and approaches. Some of them are reflected in the main directions of the monetary policy for the next year and guidelines for the current liquidity of the banking system. However, this list is more extensive. I’d like to point out to some basic principles.
We should take into consideration the formation of a corridor for fluctuations in the market. By adjusting interest rates on operations, the central bank has the goal of developing a certain level of rates on credit and deposit market in the banking system. In such a way the national currency turns to be attractive when compared with foreign currencies. This will help to attract investments in the economy and ensure the process of expanded reproduction. This goal is achieved through the establishment of the lower and upper limits of the interest rate to support or withdraw liquidity of the banking system. In such a way a corridor of interest rates fluctuations is formed in the banking system..
Don’t forget that positive rates for instruments of liquidity are supported by the central bank. Protecting and ensuring the stability of the currency against foreign currencies is considered to be the strategic objective of the national monetary policy at the present stage. A positive level of return of assets is a good sign for the implementation of the national currency as the main function of money. As you can see interest rates aren’t so easy to understand but if you are persistent enough you’ll understand all details of this extremely important economic parameter.
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