Central bankers rush to calm jittery markets - Case Study Example
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Central bankers rush to calm jittery markets
The bond yields have really gone up and this has exposed the global recovery at risk according to Milner. The bond yield is said to have been caused by the U.S Federal Reserve who have opted for a move to turn off the easy money taps and for sure, this has not gone well with most investors who have lost a lot (Milner, 2013). Most of the countries with huge debts are really affected because of the rising cost of financing thus making it difficult for the nations to adequately recover from the economic recession. It is therefore clear that most nations are experiencing difficulties unless the central banks tighten their move to curb the suffering. The Chinese government is amongst the countries that have tried to curtail the market qualms by stopping the irresponsible lending. This move is indeed very useful because it’s effects really hit the world when it began in U.S. It is important to rate the creditors and ascertain their ability to repay loans before granting them the money to a void recklessly lending. Although this move resulted into an abrupt credit crunch, the People’s bank of China did not take necessary action as soon as possible. The banks of England, China and Fed have vowed to fight the crisis which they feel that has been caused by misunderstanding and perhaps overreaction. There is a feeling that the financial markets should come up with rules and regulations to bring the interest rates to normalcy (Milner, 2013). The financial market players should ensure that there are
great prospects that would aid in the recovery process. The move by some of the central banks is very critical in stabilizing the money market particularly the interest rates. It is further argued that when some of the cyclical issues and emotional are removed, then the interest rates instability and the skintight liquidity circumstances may progressively reduce. Milner posits that the high borrowing cost was catapulted by strident upsurge in lending and perhaps the high cash demand for holidays. The high cost of borrowing was further believed to have been contributed by the fluctuations in foreign exchange markets. Banks like in China issued guarantee that the liquidity risk is now orderly. China’s central bank promised to maintain a strong communication with the financial market organizations, ensure stable prospects and controlling market interest at the required range. Central banks must be very careful at some of the communication they carry out especially to the public because they may have some adverse effects to the economy. Any communication concerning the financial institutions must not have very serious effects on the minds of investors but should be a calming one (Milner, 2013). Interest rates are very important in the economy as they may either fuel inflation or curb it and eventually affect the economy. The issue of lending made some of the banks to run out of money and indeed this sent very bad signal to the investors. This article has clearly shown the move of the banks particularly in China to curb the interest rates. The signal issued by the banks concerning the interest rates and lending generally was not appropriate. Looking at the weight of the lending issue and the recent economic recession, banks should be more careful in their operations. There should be rules and regulations governing the financial institutions and markets to avoid a repeat of the incidences that happened in 2008 globally. I believe
Summary
Central Bankers Rush To Calm Jittery Markets Considering the past financial crisis and economic meltdown, it is indeed important for all the financial institutions led by the central banks’ management to try to curb the repeat of the same…
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