The world's leading economies, led by the United States and the UK, slash interest rates in an emergency move to tackle the global financial crisis after days of record-breaking stock market losses
US is printing money like no other day in addition to the current interest rate cuts, inflation will hit the roof. What this means is that money will be more available and cheaper to borrow and invest. In the same time and especially in the short run standard of living will drop down. The only positive aspect of the current market, the US Dollar is strengthening against other currencies.
"Interest rate cuts normally stimulate the economy because people will get credit more cheaply and, therefore, will spend more. This stimulates the economy."
In addition, cutting interest rates usually bring more money out and hence its demand is reduced, normally leading to both inflation and devaluation. This is the reverse side.
Hope you understand what are Stocks. They are just ownership of a company divided into parts and distributed to buyers in stock exchanges. A company worth ten million dollar can be divided into one million shares of 10 dollar each and divided between people. The profits too are divided likewise annually.
When people lose confidence in companies (who are hit because people dont buy their commodities due to less economic activity - production and consumption, termed recession) they dump stocks, get the money and put in bank to earn interest - the easiest way.
Government decides not to make things that easy for the lazy boys. It reduces interest rates in inter-bank lending which is also reflected in your fixed deposits. So better take your money out and spend it either buying things, or start your new company. Or face inflation with little interest to cover it up with your money in bank.
I stand to be corrected but I think last time the US cut their interest rates Qatar did not do the same.
Remember there's a difference between nominal and effective interest rates. Because inflation in Qatar is so high, effectively you are getting less growth than the nominal rate.
Interest rate cuts normally stimulate the economy because people will get credit more cheaply and, therefore, will spend more. This stimulates the economy.
I don't think GCC economies will follow suit and cut interest rates. For now, at least, there's enough stimulus in the economy and inflation is too high.
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US is printing money like no other day in addition to the current interest rate cuts, inflation will hit the roof. What this means is that money will be more available and cheaper to borrow and invest. In the same time and especially in the short run standard of living will drop down. The only positive aspect of the current market, the US Dollar is strengthening against other currencies.
Also add what Fatcat said:
"Interest rate cuts normally stimulate the economy because people will get credit more cheaply and, therefore, will spend more. This stimulates the economy."
In addition, cutting interest rates usually bring more money out and hence its demand is reduced, normally leading to both inflation and devaluation. This is the reverse side.
It means this:
Hope you understand what are Stocks. They are just ownership of a company divided into parts and distributed to buyers in stock exchanges. A company worth ten million dollar can be divided into one million shares of 10 dollar each and divided between people. The profits too are divided likewise annually.
When people lose confidence in companies (who are hit because people dont buy their commodities due to less economic activity - production and consumption, termed recession) they dump stocks, get the money and put in bank to earn interest - the easiest way.
Government decides not to make things that easy for the lazy boys. It reduces interest rates in inter-bank lending which is also reflected in your fixed deposits. So better take your money out and spend it either buying things, or start your new company. Or face inflation with little interest to cover it up with your money in bank.
Thus hopefully economy is boosted.
I stand to be corrected but I think last time the US cut their interest rates Qatar did not do the same.
Remember there's a difference between nominal and effective interest rates. Because inflation in Qatar is so high, effectively you are getting less growth than the nominal rate.
If Qatar is giving higher interest rates on the QRs while the US is giving less wouldn't this mean that Qatar banks are losing ?
"The best way to predict the future is to create it".
Interest rate cuts normally stimulate the economy because people will get credit more cheaply and, therefore, will spend more. This stimulates the economy.
I don't think GCC economies will follow suit and cut interest rates. For now, at least, there's enough stimulus in the economy and inflation is too high.
"The best way to predict the future is to create it".
What part of it don't you understand?
How will slashing interest rates help? What will be the impact on GCC US dollar pegged economies?
"The best way to predict the future is to create it".