Posted on September 10, 2014 by iMFdirect
By Francesco Columba and Jarkko Turunen
(Versión en español)
photo: Patrick H. Corkery/DoD/Sipa USA/Newscom
After more than five years of exceptionally low interest rates, the U.S. Fed is getting closer to the point of managing a liftoff of policy interest rates from close to zero. As of today, liftoff is expected to take place by around mid-2015.
But this is not set in stone. The Fed has repeatedly emphasized that the timing will depend on the state of the U.S. economy. If things look better, policy rates may increase earlier. Conversely, weaker than expected data may well mean that interest rates will move up later.
In our view, based on our most recent economic projections, there is some scope for policy rates to stay at zero for a little while longer than mid-2015, given the remaining slack in the labor market and still low inflation.
Filed under: Advanced Economies, Economic outlook, Employment, Fiscal policy, International Monetary Fund | Tagged: fiscal policy, IMF, interest rates, International Monetary Fund, monetary policy, unemployment, United States, US Federal Reserve | Leave a comment »
Posted on September 4, 2014 by iMFdirect
As you trudge back to the office or cubie with a little sand still crunching in your backpack, you know the holiday is over. To help you catch up, here are some blogs to re-read to get you back into the swing of things.
Remember Europe? I thought so. The European Central Bank is center stage this week as inflation in Europe has hit a trough, which reminded me of our blog about deflation back in March that rattled a few cages.
Which brings us to what will or won’t happen with global interest rates, and their impact on well, pretty much everyone. We’ve analyzed the tea leaves so you don’t have to.
Filed under: Asia, Economic Crisis, Economic research, Emerging Markets, Europe, IMF, Inequality, International Monetary Fund, Low-income countries | Tagged: China, deflation, Europe, European Central Bank, Fiscal Monitor, Global Financial Stability Report, IMF/World Bank Annual Meetings, inequality, interest rates, United States, World Economic Outlook | Leave a comment »
Posted on July 29, 2014 by iMFdirect
By Hamid Faruqee
(Version in Español)
Global interest rates will eventually move higher. We do not know precisely when, how fast, or how far, but we do know the direction. After a long period of very low interest rates following the global financial crisis, some central banks (mainly, the U.S. Federal Reserve and the Bank of England) are planning to “normalize”—that is, to gradually tighten their easy monetary policies as their economies improve. And when U.S. and U.K benchmark interest rates go up, interest rates tend to go up elsewhere, too.
So should we worry if and when global financial conditions tighten?
The 2014 IMF Spillover Report prepared by IMF staff looks into this important issue—what to watch out for and who to watch out for as interest rates begin to normalize. The answer depends on two sets of factors. First, what is going on in the originating source countries in terms of the underlying drivers behind higher yields—for example, whether or not stronger growth, say in the U.S. and U.K., is the main force behind higher interest rates. Second, what is going on in the receiving countries—that is, how vulnerable they might be to higher borrowing costs. Both these factors matter for spillovers as highlighted in the report.
Filed under: Advanced Economies, Economic outlook, Economic research, Emerging Markets, Europe, Financial Crisis, Financial regulation, growth, IMF, International Monetary Fund, Politics | Tagged: Bank of England, inflation, interest rates, spillover effects, spillover reports, Tapering, U.S. Fed, United States Federal Reserve | Leave a comment »
Posted on June 17, 2014 by iMFdirect
By Julian Chow and Shamir Tanna
(Versions in Español)
Much has been said lately about growing private sector debt in emerging market economies. In our recent analysis, we examined the corporate sector in a number of countries and found their rising levels of debt could make them vulnerable.
Low global interest rates in the aftermath of the global financial crisis and ample amounts of money pouring in from foreign investors have enabled nonfinancial corporations to raise record levels of debt.
Credit was readily available in the aftermath of the crisis, and economic expansion enabled earnings to grow healthily, thus helping to prevent leverage from rising too far and too fast. Recently though, slowing growth prospects are beginning to put pressure on firms’ profitability. Moreover, higher debt loads have led to growing interest expense, despite low interest rates. As a result, the ability of firms to service their debt has weakened (Figure 1).
Filed under: Debt Relief, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund | Tagged: banking sector, credit, emerging market, exchange rate, interest rates, macroprudential policies, private sector | Leave a comment »
Posted on May 22, 2014 by iMFdirect
By Alexander Klemm, Andre Meier, and Sebastián Sosa
(Version in Español)
Governments in most emerging economies, including in Latin America, have reduced their exposure to U.S. interest rates over the past decade, by issuing a greater share of public debt in domestic currencies.
Even so, sudden changes in U.S. interest rates still have the power to roil financial markets in emerging economies. Witness last year’s “taper tantrum”—when the Fed hinted at the possibility of tapering its bond purchases sooner than previously expected, causing bond yields to rise sharply. Continue reading
Filed under: Economic outlook, Emerging Markets, Fiscal policy, Government, growth, International Monetary Fund | Tagged: Brazil, capital flows, emerging economies, emerging markets, financial stability, IMF, interest rates, International Monetary Fund, Latin America, monetary policy, South Africa, taper tantrum, Treasury, Turkey, U.S. interest rates, United States | Leave a comment »
Posted on May 21, 2014 by iMFdirect
By Serkan Arslanalp and Yingyuan Chen
As the financial market turbulence of May 2013 demonstrated, the timing and management of the U.S. Fed exit from unconventional monetary policy is critical. Our analysis in the latest Global Financial Stability Report suggests that if the U.S. exit is bumpy (Figure 1), although this is a tail risk and not our prediction, the result could lead to a faster rise in U.S long-term Treasury rates that impacts other bond markets. This could have implications not only for emerging markets, as widely discussed, but, also for other advanced economies.
Indeed, historical episodes show that sharp rises in US treasury rates lead to increases in government bond yields across other major advanced economies.
Filed under: Advanced Economies, Finance, Financial regulation, growth, International Monetary Fund | Tagged: banks, IMF, interest rates, International Monetary Fund, U.S. Treasury, United States | 2 Comments »
Posted on April 25, 2014 by iMFdirect
By Alejandro Werner
(Version in Español and Português)
The prospects for global growth have brightened in recent months, led by a stronger recovery in the advanced economies. Yet in Latin America and the Caribbean, growth will probably continue to slow, although some countries will do better than others. We analyze the challenges facing the region in our latest Regional Economic Outlook and discuss how policymakers can best deal with them.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund, Latin America, Public debt | Tagged: Caribbean, Central America, Chile, China, Colombia, commodiity prices, economic recovery, Federal Reserve, IMF forecast, interest rates, Latin America, Mexico, monetary policy, Peru, Regional Economic Outlook: Western Hemisphere, Western Hemisphere | Leave a comment »