The fed yesterday announced that they are slashing interest rate to zero.

In my humble opinion I think this is disaster waiting to happen.
During the aftermath of 9/11 the fed did the same thing they slashed the interest rate to about 1% to boost consumer lending and at the same time encourage consumerism.

most analyst associate the slashing of the interest rate at that time with the current financial melt down .whats your take on this?

@ scubidu

kes o/n rates are up...think we are north of 3 pct as of today...the time we hit 1.98 there was excess chumz chasin ifdb

Interbank rates help me ZERO as a consumer. What GoK needs to do is push their borrowing rates down then 'force' banks to follow suit.

When I say 'force' not by diktat but other means at its disposal. GoK through its Bills/Bonds is crowding out the private sector.

I think since May 2009 CBK has tried to lower rates through the CBR reduction and by increasing reserves in the system (either through OMO injections or reduction in the reserve ratio). Banks are still not responding...maybe they should lower the liquidity ratio from the current 20% to make banks reduce their liquid assets (raise op. cost). Or maybe Govt should start spending more so that those deposits (Kshs70 bn) they have at Central Bank will enter the commercial banking system...banks will be very liquid then and forced to lower lending rates.

It's a great stimulus...in 2008 they used the omo to alleviate the liquidity issues brought about by the Safcom IPO...used the regular repos and term auction facility for 4 months. In 2009 we're going into 8 months of injections which are highly correlated to public auctions.

Check out these links
http://www.econbrowser.c.../federal_reserve_2.html
http://www.zerohedge.com...intervention-techniques

Ive also been trying to read on basic econ/(banking) and the crr reduction can reduce the level of omo activity...the lowering of the crr like in July 09...enables the CBK to inject less money into the system but get more out of each injection in terms of meeting a desired target of deficit borrowing, as the multiplier effect on that money is higher (Money Multiplier=1/Reserve Requirement).

So if CBK didn't pump in reserves for the ifdb how wud the banks have been able to facilitate K18 bn in new borrowing. Check out the following link http://www.scribd.com/do...king-by-Murray-Rothbard . Read page 170 (page 195 on the pdf) of the doc. This is how i got the stuff above.