The US stock market has been hit hard by expectations of an interest rate hike in 2022 ”
This OPR rate is actually one of the monetary policies for the Central Bank to control the money supply in the country to ensure that the country's economic growth grows healthily.
This monetary policy can be tightened and relaxed according to the current economic situation of a country.
It is reported that the Central Bank in the United States is expected to increase the country's interest rates in 2022.
This has caused the stock market in the United States to be in turmoil in a sea of blood by seeing major indices on Wall Street fall sharply in recent times.
How Does This Interest Rate Affect The Stock Market?
As described above, the interest rate of a country is determined by the monetary policy controlled by the Central Bank of the respective country.
The Central Bank can tighten this monetary policy by raising the interest rates of a country and can also relax it by lowering the interest rates.
Reasons for Central Banks to Loosen Monetary Policy
The reason the Central Bank eased this monetary policy is to stimulate the economy by channeling money into the economy of a country.
This will make financial assistance such as loans by the government or commercial banks readily available with low interest rates.
This in turn is able to stimulate the stock market as the business of companies is getting stronger randomly due to strong purchasing power.
Why the Central Bank Tightens Monetary Policy
Well, now we see why the central bank tightened monetary policy by raising the interest rates of a country.
When the purchasing power of society increases, the demand for goods also increases and will eventually cause the inflation rate to rise sharply.
When this happens, the central bank will usually tighten monetary policy by raising interest rates which causes the flow of money in the economy to decrease.
When the Central Bank raised these interest rates, the stock market was affected as is the case in the United States today.
This is because the cost of borrowing money is becoming more expensive and the company’s cash flow is expected to be affected. This caused investors to take early steps to divest their shareholdings and caused the company’s share price to continue to fall.
When interest rates rise, many people prefer to keep their money to get dividends from banks.
However, the above is an economic theory only, the effect may not be visible directly to all countries. With this economic theory, it at least answers our question what happens to the US market right?
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