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Federal Reserve Loosens Rates for Banks

August 17, 2007 (Last updated on December 1, 2009) by

Federal Reserve of the United States of America lowered its primary credit rate (at which money to the banks are borrowed) from 6.25% to 5.75% to add liquidity to financial and lending markets. Federal Reserve (as the today’s FOMC statement says) is concerned with the current situation of the economy growth and the crisis in the credit sector. FOMC also approved that there risks of growth slowing increased appreciably. Here is the Federal Reserve’s press release concerning the bank rates:

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5–3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee’s target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks’ usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

This suggests some more cautiousness to Forex traders, especially long-term ones. While the short-term traders may reap some profits from the fast moving markets, long-term traders might need to revise their recent strategies.

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