Economics Main Assignment Guideline EPGE May 2017 Assignment 2 Question U.S. Central Bank, Federal Reserve is expected to announce the interest rate rise this year. The policymakers and market...

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Assignment Title
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Course Name
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Table of Contents
Introduction ..................................................................................................................................... 3
U.S. Interest Rate Impact on Singapore .......................................................................................... 4
Central Bank (MAS) Reactions to the Interest Rate Hike .............................................................. 5
Singapore Government Reaction to the Interest Rate Hike ............................................................ 7
Conclusion ...................................................................................................................................... 8
Reference ...................................................................................................................................... 10
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Introduction
US Federal interest rate plays a significant role in the economic growth and development
of US. There are more policy changes made by the US president Donald J. Trump mainly
targeting to create import ba
iers in the country. Import ba
iers will cause more inflation in the
country. When there is a positive expectation about the growth in the economy and increase in
the job rate and inflation the move in the interest rate is directly associated with them. Fed’s
decision highly relies on the economy of the country, growth rate, inflation and overall financial
condition of US. There is positive global economic outlook with steady inflation position in the
country that complements the interest rate increase in the US (Reuters, 2017). An increase in the
employment of the country has provided a better positive outlook about the nation demands Fed
increase the interest rates.
Interest rate changes in the US creates more influence on the entire global economy as a
whole. If increasing interest rates is resulting in higher interest rates, then goods manufactured in
the US will become costlier, and the US will suffer from weakening demand. It will attract more
investors to invest in the US due to the higher interest rate and will boost the employment in the
US. It will reduce the investment made in other foreign countries. It will result in foreign
cu
ency to get weaker when compared to the US dollar. It will lead to foreign countries to
increase their interest rate to attract or retain their foreign investment, and they will suffer from
the weakening of the domestic cu
ency against the dollar (Financial Times, 2017). It will result
in US economy to grow stronger in the world. It will lead to an increase in the foreign cu
ency
o
owing and US investment that will create an imbalance in the global economy. With
weakening the cu
ency, the import of Singapore will become costlier and will add more
pressure to the economic growth rate and GDP of the country.
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An increase in the interest rate will make Singapore dollar weaker than the US dollar that
will increase the demand for the goods from Singapore. It will have an impact on export trade
elationship with the US. Most of the companies in Singapore bo
ows in the US, increase the
Fed rates will result in increasing the cost of bo
owing to these companies, and it will result in
Singapore companies paying higher towards their loan. It will have negative impact on the
financial market of Singapore.
U.S. Interest Rate Impact on Singapore
SIBOR rates are directly associated with the Fed rates, increase in the Fed rates will
esult in increasing the SIBOR rate in Singapore. When the interest rate increases, it has an
adverse impact on the bo
owings, and it will lead to poor industry output and in the real estate
market. An increase in the interest rate in the US will result in adding more pressure to the
Singapore economy, and there are higher chances for Singapore to encounter slower economic
growth. It will have an adverse impact on the real estate market in Singapore. The increase in the
US Fed rates will result in pushing the Singapore Inte
ank Offer Rate (SIBOR) as they both are
highly co
elated (Loh, 2016).
The increase in Fed rates will result in increasing the SIBOR thus, will increase the cost
of bo
owing and will have an adverse impact on the demand for real estate. The rate increase
will have a negative impact on Singapore as they rely heavily on the US economy. US interest
ate is considered to be the risk-free rates, when there is an increase in the risk-free rate, there
will be a requirement to increase the risk premium rate to compensate the higher risk. It will
esult in creating an adverse impact on the local industrial development. It will create a speed
eaker to the Singapore economic growth. It will lead to reducing the GDP of Singapore in
long-run (Ho, 2016).
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As most of the...