What does the interest rate cut by the bank mean, and what are the effects of the central bank's interest rate cut on foreign exchange?

  The bank's interest rate cut simply means that the interest on saving money is reduced. The interest rate cut is to give the market liquidity to the market, so that the market has more funds to stimulate the economy. So what does the specific bank rate cut mean, and what is the impact of the bank rate cut on foreign exchange? This article will give you a brief introduction.

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  What Bank Rate Cuts Mean

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  An interest rate cut is when banks use interest rate adjustments to alter cash flows. When banks cut interest rates, the benefits of depositing funds in banks decrease, so interest rate cuts will cause funds to flow out of banks, deposits to investment or consumption, and the result is an increase in liquidity.

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  Generally speaking, a rate cut will bring more money to the stock market, and thus will help the stock price to rise. The rate cut will stimulate the development of the real estate industry. A rate cut would push businesses to borrow for more reproduction and encourage consumers to take out big-ticket items, heating up the economy over time.

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  The interest rate cut is to reduce the interest generated by the deposit, that is, your money is deposited in the bank. You can get 200 yuan of interest a year, but now you can only get 100 yuan of interest. When the bank cuts interest rates, the income of depositing funds in the bank decreases, so the interest rate cut will cause funds to flow out of the bank, and deposits will become investment or consumption, and the result is an increase in capital liquidity.

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  What is the impact of the central bank's rate cut on foreign exchange?

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  The Fed's rate cut is the federal benchmark rate. is the Fed's rediscount rate for commercial banks. The United States does not make specific regulations on bank interest rates, but the Federal Reserve interest rate is directly related to the financing cost of banks, and has a strong guiding role for the interest rate of American banks, so it indirectly affects the interest rate level of the entire American banking industry.

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  Under the condition that other conditions remain unchanged, a reduction in the interest rate level of a country is bad for the country's exchange rate, but there are actually many factors that affect the exchange rate. At present, the purpose of the central bank to cut interest rates is to reduce financing costs and boost the economy, and the boost of the economy is positive for the exchange rate. The transmission process of the impact of interest rate cuts on interest rates is very fast. Whether the interest rate cut itself has a greater impact on the exchange rate or the economic boost has a greater impact on the exchange rate, the market will quickly make a judgment. After the European Central Bank cut interest rates, the stock market in the euro zone rose quickly.

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  The impact of the Fed’s rate cut on foreign exchange is theoretically bullish. After the Fed’s rate cut, the cost of using U.S. dollars will be reduced. Since the U.S. dollar is an international reserve currency and can be freely converted, more U.S. dollars will be converted into unreduced dollars. If there is an interest-bearing convertible currency or commodity, everyone sells the dollar, causing the dollar to depreciate. The rate cut by the Federal Reserve causes the dollar to fall, depreciating against other currencies, and rising relative to other currencies. After the Fed cut interest rates, major currencies rose against the euro and the pound.

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  The Fed's interest rate cut is favorable

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  If the Fed cuts interest rates, the interests of depositors will be reduced, so they will invest their deposits in other investments to make up for the benefits they should have. The number of borrowers increased and the amount increased. That is, through this to stimulate economic growth, as well as domestic demand.

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  The downside of the Fed's rate cut

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  After the Fed cut interest rates, the cost of using it will be reduced. Since the US dollar is used internationally and can be freely converted, more US dollars will be converted into convertible or commodities without interest rate cuts, and everyone sells US dollars. The Fed’s rate cut has led to a decline. For other countries, because international trade is mostly settled in US dollars, the corresponding purchasing power in US dollars has declined. The money in the hands of Americans has depreciated, and the price of imported goods has risen relatively. Therefore, the import capacity of the United States has declined. Similarly U.S. goods denominated in U.S. dollars are less expensive relative to other countries’ currencies, making them more competitive, which in turn benefits exports.

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  Now everyone should know what the bank rate cut means! The interest rate cut by banks is a means for the country to stimulate consumer consumption. The interest rate is not as high as before. Some bank users may choose to consume. In this way, the development of the social economy is further mobilized. For the overall development of the national economy, In fact, it has a certain positive effect. Of course, bank interest rate cuts will directly affect foreign exchange rates, so investors need to pay more attention to the dynamics in this regard.