New York, New York (PressExposure) March 06, 2010 -- Asia-based boutique brokerage, "Mann International", believes that the Federal Reserve's unexpected decision to raise the rate at which US banks borrow directly from it should not be seen as a sign of imminent monetary tightening.
Analysts at the firm suggest that it is more likely that the Fed is trying to wean commercial banks off the diet of ultra cheap funds it has been providing since the onset of the financial crisis and, instead, encouraging them to use the credit markets doe short-term funding.
"Mann International" says that the rake hike from 0.50% to 0.75% will make it cheaper for the banks to turn to the credit markets for their short-term funding. The hike will have no effect on home mortgage, credit card or auto loans but it is being seen by the markets and politicians alike as the beginning of the end for the era of extraordinarily cheap money necessitated by the credit crunch.
"Mann International" said that the Fed would be keen to reassure markets that the move did not augur a premature monetary policy tightening exercise but reflected their confidence in the strength of the credit markets to return to their normal function as the best source for short-term funding.