U.S. — Key Interest Rates. The rates to watch are: Federal (Fed) funds rate — sets the tone for money market rates.
Discount rate — usually sets the floor for the Fed funds
rate.
The Fed funds and discount rates are the two key interest
rates. Deoositorv institutions hold non-interest bearine reserve accounts at the Fed to meet reserve requirements and handle interbank transactions. Deposits above the minimum required are traded overnight and the Fed funds rate is what banks charge each other for these overnight loans. The Fed has an objective for the funds rate which is never formallv published. However.
so-called Fed watchers can usually tell what the target is by observing where the funds rate trades in conjunction with the Fed's money market operations.
The first time the Fed announced a rise in interest rates at
The time it took place was on February 4, 1994 when it issued a statement saving that the Federal Open Market Committee had decided to increase slightly the degree of pressure on reserve positions. However, a series of rate rises in early 1994 were accompanied by formal Fed statements which the markets believe were designed to make its intentions clear. What is not clear is whether this will become the standard method by which rate changes are signalled. Traditionally. Fed watchers had to wait until the release of the minutes of the regular Federal Open Market Committee meetings, which are published six weeks after wards, for confirmation of any perceived change in monetary policy.
All institutions with reservable deposits can borrow at the Discount rate from the Fed's discount window for short term adjustment purposes and limited other uses. The Fed funds rate is usually above the discount rate. When the funds rate is at, or be low, the discount rate there is little use of the discount window by healthy banks which have access to the funds market.
(There is no U.S. equivalent of the lombard rate which other central banks use to penalise institutions requiring emergency funds. However, there are circumstances when the Fed may charge a market rate above the basic discount rate. For example, borrowing under the seasonal programme is at a market rate average of Fed funds and certificates of deposit (CDs). Extended credit borrowing by banks in difficulty can also be at an above market rate.)
Open market ooerations are conducted with a eroup of primary dealers in government securities (about 40) which are mainly subsidiaries of bank holding companies and securities houses. Eligible paper includes Treasury bills, notes, bonds and, for repos, government agency securities.
Vocabulary
to set the tone — задавать тон
i
non-interest
bearing - беспроцентный
о: target — планируемая цифра, установленный курс
л
in conjunction - в связи с, связанный с...
ai to be designed — предполагаться
i
minutes — протоколы
i:
perceived — предполагаемый
л
for adjustment purposes — для целей урегулирования
ае
to have ' access - иметь доступ к...
i:
to'penalise - наказывать
to change a rate - менять курс
e
'eligible papers - ценные бумаги, отвечающие требованиям
Basically, the Fed controls U.S. monetary policy. It is of ten described as independent and in a narrow sense this is true: the Fed is self-financed and does not require presidential approval to change interest rates. However, the Fed can be abolished or have its terms of reference changed by Congress. The chairman is appointed by the President for a four year term only and is conventionally a political appointee. In practical terms therefore, it is virtually impossible for the Fed to follow an interest rate policy significantly at odds with that desired by the U.S. Administration.
Japan — Key Interest Rates. The rates to watch are: Uncollateralised (unsecured) overnight call rate — sets the tone for money market rates. Official discount rate (ODR) — lagging rate of psychological significance. Japan is nearing the end of a decade long period in which most interest rates have been deregulated. These changes mean the Bank of Japan (BOJ) now sets only its official discount rate. at which it lends to commercial banks, and the liquidity deposit rate. Other interest rates are set in the open market and the BOJ aims to influence them. indirectly, through its market operations. The most important short term interbank money market rate is the uncollateralised overnight call rate. The BOJ closely monitors call rate movements and puts most emphasis on them when managing the market. The BOJ appears to have an unpublished target zone for the call rate but the market usually gets an idea of the BOJ's target range and credit stance by interpreting the signals in its daily operations. For the past several years, the market has focused more on the amount and timing of BOJ operations. Rates set by the BOJ have rarely ruffled any market feathers, as they have been largely in line with prevailing market rates. The weekly average call rate. and its level at intervention time, can provide signals on the BOJ's policy stance. Since the BOJ prefers to signal monetary policy changes through the uncollateralised overnight call rate. the official discount rate (ODR) is now typically a lagging indicator of monetary policy. Nevertheless, the ODR still has an impact. The ODR applies to the rediscounting of commercial bills and official loans secured with Japanese government bonds (JOBs), specially designed securities and bills corresponding to commercial bills as collateral. If the ODR is increased, financial institutions find that the cost of raising funds is affected directly, via the higher cost of acquiring discount window loans from the BOJ and. indirectly. through the increased money market rates that usually precede, and often trigger an ODR change. The opposite is true for a reduction in the ODR. Under the Bank of Japan Law (1942) the Bank's policy board has the authority to formulate, direct and carry out monetary policy. While ultimate control of monetary policy rests with the Ministry of Finance, the Bank of Japan Law gives the central bank sole responsibility for changing the official discount rate. There is no hard and fast rule.
terms of reference — круг ведения, мандат, компетенция
to be at odds - противоречить
ее lagging rate - запаздывающий курс
e deregulated — разрегулированный
call rate - онкольная ставка, процентная ставка по ссудам до востребования
о to monitor - отслеживать
ае stance — поза, позиция
л to rume - взъерошить, беспокоить, волновать
to be in line - соответствовать
ei prevailing — господствующий
to have impact — влиять
e to affect — влиять
i to trigger — вызывать sole - полный
CL
hard and fast — строго обозначенные
There are seven members of the policy board, four of whom are appointed by the cabinet and approved by both houses of the Diet (Japanese Parliament). There are four representatives from private industry, one from the Bank of Japan and two from the government. The government members, taken from the Ministry of Finance and the Economic Planning Agency, do not have voting rights.
Germany — Key Interest Rates. The rates to watch are:
Repo rate — sets the tone for money market rates.
Discount rate — sets the floor for money market rates. Lombard rate — sets the ceiling for money market rates. The repo rate is now the main tool for guiding the overnight money market rate. Repos enable the Bundesbank to adjust monetary policy without changing its headline rates. A change from a fixed to a variable rate repo (or vice versa) may indicate a policy change. But while higher rates at a variable rate repo reflect higher bids for funds by banks, they do not necessarily point to tighter policy in the short term (and vice versa).
The discount rate normally sets the floor for money market rates while the lombard rate usually sets the ceiling. Thus, the discount rate is more important when interest rates are falling while the lombard rate is the kev rate when interest rates are rising.
The Bundesbank's main instruments are either desiened for long mn major policy changes or to fine tune the money market.
The Bundesbank sets monetary oolicv and is the most independent of the Group of Seven central banks. It has a legal obligation to protect the external value of the mark. Without prejudice to the performance of its functions, the Bundesbank is required to support the general economic policy of the federal government. In using its powers under the Bundesbank Act, the central bank is independent of instructions from the federal government.
u
Bundesbank — Центральный банк Германии
о
Lombard rate — официальная ставка
центрального банка по
кредитам коммерческим банкам, обеспеченным ценными бумагами (ФРГ)
еэ
variable — меняющийся
to fine tune — осуществить «тонкую»
настройку
е
prejudice — предрассудок
Comprehension Questions
1. What are the key interest rates in the USA, Japan and Germany?
2. Which of them is a better instrument for guiding the money market rate?
3. Why didn't the Fed publish the fund rates?
4. How does BOJ influence interest rates?
5. What do Discount and Lombard rates set in Germany?
6. Which of the two rates is more important when interest rates are falling?
7. Which central bank of the Group of Seven is more independent?
8. When did the Fed announce a rise in interest rates for the first time?
9. When do financial institutions borrow from the Fed's discount window?
10. Does the Fed require presidential approval to change interest rates?
Exercises
Ex. 1. Learn the vocabulary.
Ex. 2. Put questions to the underlined words.
Ex. 3. Make a syntactical analysis of the subordinate clauses (state what kind they are).
Ex. 4. Choose verbals and state their syntactical function in the sentence.
Ex. 5. Translate the texts.