Real interest rates are likely to fall to pre-pandemic levels once inflation in developed countries subsides, according to the latest International Monetary Fund blog post. According to the author of the blog post, the transition to a “cleaner economy in a budget-neutral way” could lead to lower interest rates in the medium term.
Recent rate hikes are temporary
Interest rates in developed countries are likely to fall to pre-pandemic levels if authorities succeed in containing inflation, the latest blog post from the International Monetary Fund (IMF) suggests. The blog post adds that “the recent rise in real interest rates is likely to be temporary.”
In addition, the return of real interest rates to their pre-Covid-19 dissemination levels coincides with an easing of monetary policy regimes in many countries; as reported by Bitcoin.com News, central banks in developed countries are raising base rates in an effort to curb inflation. Rising interest rates have sparked fears that the global economy may be headed for a recession.
However, in an April 10 blog postTransition to a Green Economy Could Lower Real Interest Rates Globally:
Transitioning to a cleaner economy in a budget-neutral way will, in the medium term, lower global natural yields as higher energy prices (combined with taxes and regulations) reduce the marginal productivity of capital, which tends to lower it. However, public investment in green infrastructure and subsidized deficit financing could offset and even reverse this outcome.
The authors also point to the growing power of so-called deglobalization, which could result in both “trade and financial fragmentation.” According to the authors, this outcome is likely to result in a boost to the natural rate of advanced economies and a decline in the natural rate of emerging economies.
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