National Interest Rate

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Subject: Cross Culture Management

Instructor: Chris. Quach, Ph.D Group members:

1.Allisa

2. Elena

3. L Th Thy Linh4. LuNguynK Tm5. TrnT Trinh6.Nguyn oan Nh

7. Hng


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The reason

Why Nationalbank decrease

the Interest rate?


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INTRODUCTION


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Key interest rate

Commercial banks borrow money from

the central bank at the key interest rate

Instrument to influence the money andcapital market

Interest rate for loans and investmentsare based on the key rate


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Decreasing the key interest rate

Decreasing key

interest rate

Consumptionand investments

increaseGDP increases

Unemploymentrate decreases

Risk of inflation

Loans arecheaper

Low interestsfor bank-savings

Stabilized

Macroeconomic situation

or even upward trend


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Increasing the key interest rate

Increasing key

interest rate

Consumptionand investments

decreaseGDP decreases

Unemploymentrate increases

Risk of inflationis combated

Loans are moreexpensive

High interestsfor bank-savings

Macroeconomic situation

is slowing down

Aim: absorb themoney supply

surplus


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Germany

Member state of the European Union

Member of the Economic and Monetary Union

Euro as a currency instead of the Deutsche Mark since 1999

The European Central Bank responsible for currency and price

stability since 1999

Economy Drivers

Exports of technical equipment and machinery

Highly skilled labour force

Reforms for long-term growth


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UNEMPLOYMENT

1998-2005 the main economical focus on unemployment

decrease As a result the relatively modest increase in

unemployment during the recession in 2008-09


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Gross Domestic Product

(GDP)

GDPs growth in 2009 to 2010

The export is a driver of the recovery

Export demand vs. domestic demand in the next years


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INFLATION

Expectations ofrecession-fighting

interest rate cut by the

European Central Bank


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3.00

4.25 4.25

2.75

2.00 2.00 2.252.75

4.00 4.25

1.00 1.50 0.75

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP growth (annual %)

Unemployment, total (% of totallabor force)

Inflation, consumer prices

(annual %)


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United State


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General information

From 1971 to 2012 : averaged interest rate of 6.2 %

Peak : 20.0 % in March 1980

Low record : 0.25% from Jan 2009 up to now

Decision authority :

Board of Governors of the Federal Reserve(Board)

Federal Open Market Committee (FOMC)


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2008: Financial crisis initially caused by by the bankruptcy of LehmanBrothers.

(Federal Reserve) decided to decrease the interest rate from 1% to 0.25%=>> prevent the United States from being sunk into a recession

Interest Rate From 2008 to 2012


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Purposes

To stabilize the economy and financial system

To free up the credit market

To maximum the employment

To stabilize prices

To moderate long-term interest rate


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Cons Pros


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DebateOn Sep 2012 Federal Open

Market Committee(FOMC) stated to to keepnearly zero interest rate at

least to mid - 2015 tostrengthen economic

recovery

Some economists argue Feddoesnt see any hope for a

recovery in the next years!!


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ConclusionThe nearly-zero interest rate from the end of 2008 up to

now has saved the economic from recession to someextent.


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Vietnam


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Brief of situation

GDP increase to 9%within 3 year

The interest rate :8.75%

In 2007, joinedWTO

Decrease the inflation Increase the interest rate

(to 14%) and tight up

the credit

In 2008, a bigrecession occurred

The inflation :

28.24% (Sep 2008)


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to provide favorable condition for enterprises to get

the capital to maintain and expand their business

to minimize the pressure from paying interest for

bank loans

to increase unemployment rate and promote

exportation

to push the GDP to increase.

Purpose


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INFLATION


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INTEREST RATE

GDP l t b t f t 3 i 2009


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GDP of Vietnam

After decreasing the interest rate

GDP annual rate began to grow up from quarter 3 in 2009.


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UNEMPLOYMENT


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Key interest rate is an important instrument to

regulate the economy but its not the only one. The key purposes to decrease interest rate is

theoretically similar in the world

Interest rate itself is not a miracle solution

In reality, the decision to decrease the interest rateand its effectiveness depends on: motivation,economic situation, characteristics of each countryetc.

Conclusion


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National Interest Rate