The domino effect of the US rate hike

In a move that took global financial markets by surprise, the United States Federal Reserve Board late last month announced a decision to raise its interest rate it charges on short-term loans to banks from 0.50 percent to 0.75 percent.

The move marked the first discount rate increase since December 2008 when the US central bank set its rate at 0.50 percent at the height of the global financial crisis. The unexpected news, although downplayed by the Fed, sent global stock markets into wild fluctuations.

In a statement issued shortly after the announcement, Federal Reserve Chairman Ben Bernanke dismissed the interest rate increase as a sign that the bank will change its relaxed financial policy or that it was the beginning of a US withdrawal from its previous economic stimulus packages. The announcement, however, failed to pacify markets worldwide.