Amina Sammo
School of Finance & Financial Management, Business University Costa Rica
Email: minasammo@gmail.com
Abstract
Central Banks all over the world use the Central Bank Rate to control inflation. Inflation occurs when the money in circulation is too much in comparison to the few goods available for trade. Inflation causes the prices of goods to go up: therefore, central banks can control inflation by regulating liquidity. This is often done by increasing the Central Bank Rate, and hence making expensive to acquire money, in an attempt to reduce money supply in the economy. The effect of this could be reflected by fluctuation of stock prices at the financial markets (Investopedia, n.d.). Stock markets are exceedingly volatile, and this makes investors very keen and vigilant on any factors that may cause stock price fluctuations. Stock Market Performance helps investors to predict and anticipate price fluctuations. Business owners, policy makers, economists as well as curious Kenyans have tried to ascertain the correlation between the Central Bank Rate and Stock Market Performance over time, especially in the wake of globalization. There have been major stock market crises over the world which could have possibly been averted if it were indeed possible to control stock market prices using interest 2 rates. Such crises usually affect the entire international trade markets, and their effects are eventually felt domestically
Keywords: Inverted Yield Curve, Exchange Rates, Foreign Exchange Market
