Wednesday, September 19, 2007

Federal Reserves cuts Interest rate

The Federal Reserve cut its federal funds rate for the first time in more than four years to 4.75% from 5.25%, and also cut its discount rate by half a point, citing turmoil in financial markets as a threat to economic growth. Most economists and investors had expected the Fed to trim its benchmark federal funds rate at least 25 basis points, but the 50-basis point reduction took some by surprise and left the market to mull where rates are headed from now. Some predicted that more cuts are yet to come, which would keep pressure on the dollar.

The results are evident as EURO recordsits highest exchange mark against the US Dollar ever since it begins trading in 1999. The dollar depreciates against many other currencies with exception to the Japanese yen as the dollar up 116.07 yen, from 115.80 yen earlier. This is due to the fact that Japan's has the lowest benchmark rate of the developed nations.

The effect on Malaysian Ringgit? The ringgit has appreciated per US dollar from RM3.4859 to RM3.4823 overnight. That would mean... The government would purchase Oil at a cheaper price, but this benefit will not be transfered to the end users i.e. you and me :-( Ceteris Peribus- the ringgit would appreciate further as the Fed is expected to reduce its interest rate for this 14 month period.

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