The role of interest rates

• Main Author: Chung, Eddie Hoi Ming
• Other Authors: Nanyang Business School
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/55764
• Institution: Nanyang Technological University

The main purpose of this project is to study the role of interest rate in the economy and in the regional economies. Special attention was focused on the US Federal Reserve Board which reversed a five year trend by raising interest rates seven times from February 1994 to February 1995 to double its interbank federal funds rate from 3% to 6%, and also raise its discount rate from 3% to 5.25%. The main objective of the Fed's move was to fight inflation. But by raising interest rates, it was targeting to lower the level of economic growth and thus faced problems when firms and labour unions urged them not to raise rates anymore as many were affected and become unemployed. Banks also faced pressures to raise interest rates after the Fed's move. The Fed also faced the problem of bringing the economy to a recession. The Fed's move also affected other economies including those in South-east Asia. Singapore was affected as major banks began to raise interest rates round after round.