Are Interest Rates Rising Soon?
This question is on a lot of people’s mind right now. In order to accurately answer this question, you have to look at the economy of the country. The right question to ask is “Are Interest Rates Rising Soon in This Economy”.
Interest rates rise and fall for various reasons. It is basically the price that one pays for a loan in a particular currency. It is determined by the amount of currency that is available for loan. The US Fed embarked on an easy money policy ie Quantitative Easing to provide enough liquidity in the market so that the interest rates can be influenced to remain at a very low level.
When people lose confidence in a particular currency, they may start to sell that currency which would result in a drop in value of that currency. The government would then have no choice but to increase the interest rate to support that currency.
So you see, the dynamics of interest rates depends very much on the supply and demand of a particular currency.
It is accepted as common knowledge that the US Dollar is fast losing its value. This might eventually result in a loss of confidence in the dollar, prompting selling by people around the world and leaving the Fed no choice but to increase the interest rates to support the US Dollar.
Are interest rates rising soon in the US? That looks like a very high probability.
Are interest rates rising soon in the rest of world? Not necessarily. It would really depend on the currency.
Let’s use Singapore Dollar as an example. Singapore has gained a reputation of a well managed and highly efficient country. It has a strong financial sector and is reflected in the strong Singapore Dollar.
When investors around the world lose confidence in US Dollar, they would sell the US Dollar but they must then convert it into some other form such as gold, silver or another currency. It goes without saying that they would look for a strong currency. There are only a handful of such strong currencies and one of them is the Singapore dollar.
This is exactly what happened during the Asian Financial Crisis back in 1997 – 1998. The currencies of Indonesia, Thailand, South Korea and Malaysia were under selling pressure and some of these funds flowed to Singapore as it was seen as a safe haven currency in South East Asia.
The same thing can also happen once investors start to lose confidence in the US Dollar. There is a high chance that some of the funds will find its way to Singapore. This would cause a high liquidity situation in Singapore which would result in low interest rates.
As the interest rates rise in the US, the opposite might happen in Singapore and other countries with a strong currency. It might even result in a negative interest rate situation where the depositors will have to pay interest to the banks when they deposit their cash. You can think of it as a fee for safe keeping their cash.
So are Interest Rates Rising soon? That would depend very much on the economy that is in question.