The interest-rate announcement specifies the short-term target rate that the central bank will try to maintain in the future. Interest rates are one of the most important economic announcements on the calendar because the interest rate that a central bank sets for its economy has ripple effects that spread far and wide. You will also notice that many of the other economic announcements that we discuss gain some of their importance from the impact they have on a central bank’s decision-making process when it sets interest rates.
Interest-rate data are released in one key announcement that you need to watch:
Central bank interest-rate announcements: Official announcements from a central bank stating what the target short-term interest rate for the economy is going to be.
Impact on Trade Flows
Rising Interest Rates —> Increased Investment Flows Increased Demand for Currency Increase in Value of Currency —> Less Competitive Exports Decrease in Trade Flows
Falling Interest Rates -> Decreased Investment Flows —> Decreased Demand for Currency —> Decrease in Value of Currency –> More Competitive Exports —> Increase in Trade Flows
Impact on Investment Flows
Rising Interest Rates -> More Attractive Investment Returns->Increased Investment Flows
Falling Interest Rates —> Less Attractive Investment Returns —> Decreased Investment Flows
Impact on Money Supply
Rising Interest Rates —> Decrease in the Money Supply
Falling Interest Rates —> Increase in the Money Supply
Impact on Investor Fear
Raising Interest Rates (When Inflation Is Rising) -> Confident Investors
Not Raising Interest Rates (When Inflation Is Rising) —> Nervous Investors
Lowering Interest Rates (When the Economy Is Slowing) ->Confident Investors
Not Lowering Interest Rates (When the Economy Is Slowing) —> Nervous Investors
Typical Impact on the Currency
Rising Interest Rates -> Stronger Currency
Falling Interest Rates -> Weaker Currency
