Feds expected to cut Interest Rates
If there are any experts out there, I’d love to have your input. I’m a bit of a hobbyist economist that recently had my interest jump started after emailing my favorite professor from my college days and reading and trying to understand what is happening to the economy now.
Last night, while listening to Planet Money an NPR podcast of its finance radio show, I heard that the Fed has signaled that it may cut interest rates again. The rate is already at 1% so there’s not a lot of cutting room left. When the rate is cut, it allows banks to borrow money from each other at lower rates. This will usually increase the amount of loans bank will make and thus increase the supply of money.
This may be good news to the world economy, I don’t know how much it will help. It seems banks don’t want to loan to each other at any rate! Even if lending does not increase, it will likely have a psychological effect or expected effect to increase the supply of money. This increase in supply should result in lower exchange rates for those traveling or living in the Philippines.
With the last cut by the US Central Bank, the exchange between the US Dollar and Philippine Peso (PHP) dipped slightly but it seemed to mostly trigger a slow down in the dollar’s increased value in relation to the PHP. The dollar is back on its upward trend though, its now at 49.1PHP to 1.00 USD. The dollars is also improving toward the British Pound. This may hurt exports. So a strong dollar may seem like a good thing, it can hurt companies that export to other countries, causing even more layoffs in the US.
To be certain my observation and hypothesis are correct, one would need to do an in-depth study to determine the historical interaction between the US Central Bank interest rate changes and the change in exchange rates between the dollar and the peso.
If interest rates are cut again, it will likely cause a decrease in the rate of increase of the dollar to the Philippine peso. But they can’t cut the rate below zero so space to try to increase the loaning of money by cutting the interest rate doesn’t have much more room to go. I’m still hoping that the dollar will eventually reach 60Php to 1USD.
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As an update. The PHP to Dollar rate is now flirting with 50 to 1. Yesteday’s close was 49.13 today’s close was 49.7x. I think we’ll see a short drop in the dollar when the Feds cut rates again.
Yeah, still below what it should be but alot better than 42 which was killing me. We mill rice and had to change over to the Euro for our capital, even had to head to the States to take care of it which was a drag.50 is great, it will drive the local economy because of the remittances.
I see, so remittance go up when the dollar is doing well. As dollars are converted into Peso that makes the dollar more plentiful to some extent and has a downward pressure on the dollars value.