Interest Rates Could Fall Once Inflation Is Tamed – IMF

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When inflation in advanced economies is brought under control, real interest rates could potentially drop back to pre-pandemic levels, according to a new blog post from the International Monetary Fund (IMF). The authors of the blog post explained that a “cleaner economy in a budget-neutral way” could result in lower rates in the medium term.

Recent Interest Rate Increases Could Be Short-Term

Interest rates in advanced economies may drop to pre-pandemic levels if authorities are successful in curbing inflation, the International Monetary Fund (IMF) post has stated. The post also said that the “recent increases in real interest rates are likely to be temporary.”

Source: IMF Blog.

The return of real interest rates to levels seen prior to the coronavirus pandemic will also be accompanied by a reduction in the respective countries’ monetary policy regimes. Bitcoin.com News has already reported on central banks from advanced economies increasing benchmark rates in an effort to control inflation. The higher interest rates have caused worries that the global economy could enter a recession.

However, the authors of the April 10 blog post claimed that the transition to a green economy could potentially lead to lower real interest rates globally:

Transitioning to a greener economy in a budget-neutral way could push global natural interest rates lower in the medium term, as higher energy prices (reflecting a combination of taxes and regulations) would reduce the marginal productivity of capital. However, deficit-financing of public investment in green infrastructure and subsidies could potentially offset and even reverse this result.

The authors also suggested that deglobalization forces could intensify and this could result in “trade and financial fragmentation.” According to the authors, this could lead to a rise in the natural rate in advanced economies and a decrease in emerging markets economies.

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Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author, and writer. He has written extensively about the economic predicaments of some African countries and how digital currencies could offer Africans an escape route.







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