What will be the effects of cut in lending interest rate by government ? ?
Well first off, the US government doesn’t actually set interest rates. What it does is set a target interest rate, and then increases or decreases the money supply according. The market sets the interest rate. Over the last couple of years, interest rates have been very low, and therefore we will not see a decrease in interest rates in comparison to say last year. The Fed will use other tactics to try and keep lending flowing as markets are already constricting and driving interest rates up. Present floating rates will be equal to the interest rate plus whatever level the bank has set already. Fixed deposit rates will not change. As we have already seen, as the economy worsens, the stock market declines. As liquidity slows and companies can’t get the money the need to stay afloat without paying high premiums, stock prices will continue to get beat up, at least in the short term.
