US Central Bank Expected To Lower Interest Rate
The US Federal Reserve Bank, also known as the Central Bank is having meetings Monday and Tuesday to decide how to react the worsening world economy and specifically the US economy. With negative growth for the last two quarters it is expected the Central Bank will cut its rate to .5% or the lowest rate since 1953.
Interest slows growth, so when growth is negative the general thought is that government policy should be developed that helps to stimulate growth. Lower interest rates will put more downward pressure on the dollar. 
Again, if it will rise or fall against a particular currency depends on how that currency is behaving in general. It could still rise against some currencies but it will push the value of the dollar lower. The dollar may stay strong against some currencies but this move will weaken the dollar.
The dollar has been declining this month. Not just against the Peso but many other currencies as well. This month has already seen a 1peso drop vs the dollar in two days. The stock market is up on these rumors and rumors that President Bush will tap into the $700 billion intended for financial institutions and use it to rescue the automakers.
There are several factors putting downward pressure on the dollar at the moment. There seems to be some pressure on the Philippine Central Bank to lower its interest rate which should put downward pressure on the Peso. Growth had been brisk in 2007 and strong in 2008 but nearly as strong. The Philippine economy is expected to continue its growth, even in 2009 but not at the same high rates as it has seen.
The high rate of growth in the Philippines has pushed prices up. The cost of oil has also pushed other prices higher. With the price of oil falling, coupled with slower growth, it should help slow inflation which had been causing havoc among the Filipino.
The entire point of the US Central Bank rate cut is to help stimulate banks lending to each other. This lending creates money. The creation of money creates more money and that is the forces behind the downward value of the dollar. If demand remains higher than the supply, the dollar should continue to rise in value.
Another factor, in determining the value of the dollar, is the rate at which people spend money. When we spend money and deposit it in banks, that too increases the amount of money available. Indications are that people are not spending. And banks are not lending. With companies, including profitable companies laying people off, people are saving money. Americans are also saving because they believe that there will be better deals out there in the near future.
Hopefully the dollar will not fall much more, I am no longer confident that the dollar will continue to rise. The bailouts are the reason for that. Those too create money. Mr. Obama’s plan to spend 1 trillion in public works will also create money. I’m concerned the value of the dollar could go down. I hope it doesn’t go back below 40Php. I don’t know where it is going. There are a lot of downward pressures on the dollar right now.
The lower the value of the dollar, the more the US will export. That may be part of the plan to help get the US economy growing again. A devalued dollar will reduce the trade deficeit we’ve heard so much about during some periods. I’d like to say and think everything is rosey for the dollars value but it just doesn’t seem to be the fact to me.
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Base currency is PHP. Rates as of 2008-12-15 20:09:12 UTC (GMT).
1.00 USD down to P47.724998474
and falling.
Nothing to do but wait and see. Hopeully it won’t fall too much. December is often a month where the exchange rate falls anyway. So we’ll have to wait until after the First of the year to see what is really going to happen.
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Yes, December always sees the dollar decline in the PI because of the OFW’s sending more money back home. I’m not following the decline and then coming up with my concerns.
I’m watching the fundamentals and they all point downward. I think I heard the Federal Reserve Bank cut its rate to .25% that would the the lowest rate ever.
The fed also plans now to make loans directly to the public. Banks are going to be taking losses and for that reason they are hording their cash.
If you go back to my first posts on the subject here and on my personal blog, I predicted that would be the reason for hoarding by the banks. They wont lend as they have to cover their losses due to housing being over priced.
Things are bad, very bad. A poor stock market isn’t necessarily a bad thing for expats, in fact, it will very likely be a good thing for those converting their US dollars into Peso. The flood of cash into the system by the Federal Government is a bad thing but I can’t think of only myself.
Right now the exchange rate is: P46.900 = USD1.00 that’s three peso in a short time. It has me concerned.
I think you will see at least a slight recovery after the first of the year. i think it will hang out in the 48 to 49 region for a little while. with the usual occasional rises and dips.
tom’s last blog post..Shopping: What Can you Buy
Still dropping for now:
Close P46.760 = USD1.00
Previous Close 46.900
There were several bank failures in Cebu this week. This could push the value of the PESO up as the Philippines may be about to face their own credit crunch now. I don’t know enough about Philippine Banking to really know though.
Most of the failures lately have been tied to the legacy group. They had several plans offering high intrest rates where you could double your money in 3 or 5 years. Sound to good to be true? It was. Many people could lose a lot of money from this. The regular bank deposits are insured up to P250,000, but many of the investment funds may not be.
These are all small rural banks so unless you unfortunate enough to have your money in them they won’t have too much of an inpact on a national scale.
Don’t you know a watched Peso never rises?
The dollar is up slightly, 2 centavo.
At least its up:
12/19/2008
Close P46.910 = USD1.00
Previous Close 46.760
Yes, it was the legacy group. It was two banks but several branches, seems people count each branch as a separate bank here.
Other bankers are saying it is because of the high interest rates they were paying. I tend not to accept everything I hear, especially from interested parties.
Something else may be going on. If that was the only problem, other banks would likely have bought them up. That is what almost always happens here.
As soon as the other banks took on the accounts, the acquiring banks rules would have governed the interest being paid. Something else may be going on with those banks to make them to poisonous to be acquired. I don’t think I’d rest on the comforts from other bankers as being as good as gold.
I don’t know if this is an indication of more trouble to come or not. It is just another indicator to be considered.
Looking for the dollar to rebound, hopefully not wishful thinking.