Bernanke to explain raising rate this week

Bernanke to explain raising rate this week

Washington: US Federal Reserve chief Ben Bernanke is expected to shed light this week on the central bank’s sudden decision to hike an emergency bank-lending rate, triggering speculation on monetary tightening.

Bernanke is scheduled to appear before the financial committee of the US House of Representatives on Wednesday and the Senate banking panel the next day, where his testimony will be closely scrutinized by jittery markets.

The Fed’s increase on Friday of the discount rate, the interest it charges on emergency loans to banks, rattled stock markets. Investors feared the central bank might be moving faster than anticipated to withdraw critical support measures for the US economy, as it recovered from a brutal recession.

“Hopefully, Ben Bernanke’s testimony to Congress (this) week will shed some important new light on the Fed’s policy intentions," said Brian Bethune, chief US financial economist of IHS Global Insight. “It is indeed puzzling as to why the Fed made this move and announcement out of cycle with its meeting dates for 2010," he said.

Although many had expected the Fed to raise the discount rate, considering the waning interest from banks for the short-term loan facility, the timing caught many by surprise, especially coming ahead of the central bank’s 16 March policy meet.