Summary: MUMBAI -- India's central bank on Thursday raised its key short-term interest rates
by 25 basis points -- its 10th hike in 16 months -- in a bid to tame stubbornly high inflation.
Summary: India's central bank RBI slashed its two key short-term interest rates
on Wednesday in a bid to boost a weakening economy amid the slowest third-quarter growth in six years.
Davis points out that a number of observers have expressed surprise that an inverted yield curve between long- and short-term interest rates
would develop in the capital markets at a time when the economy did not appear to be in any immediate danger of tanking.
Since then, the Federal Reserve has raised short-term interest rates
at a pace it believed would encourage growth without sparking inflation.
short-term interest rates
at extraordinary lows (at one point the Fed funds rate was set at 1 percent), financial institutions would borrow on the short end of the yield curve and buy the long end, guaranteeing a nice profit even before taking any risk.
The popularity of these products ebbs and flows based on the level of long-term and short-term interest rates
,'' said Doug Duncan, senior vice president and chief economist of the Mortgage Bankers Association of America, a Washington, D.
While monetary authorities in the US, the UK and Canada have been raising short-term interest rates
in recent months, long-term government bond yields have been falling and we explore some possible explanations in this section.
Although short-term interest rates
have converged further during 2001, inflation remains higher in Euroland because of the weakness of the euro and higher unemployment.
As the Federal Reserve raised short-term interest rates
six times between June 1999 and May 2000, short-term municipal rates also rose.
Expectations about future short-term interest rates
, for example, can be inferred by comparing the yields on bonds of different maturities, given the assumption that a bond's yield depends on the sequence of short-term interest rates
expected over its term to maturity, plus a term premium.
Longer term, government bonds in Europe will rise in sympathy with Treasuries, perhaps even more so because short-term interest rates
there--despite the recent, vicious correction in bond prices--will continue to drop.
This rush was fueled by the stability of the European Monetary System (EMS), the convergence of both long- and short-term interest rates
, and the apparent development of an increasingly integrated European capital market.