Should We Worry About Higher Interest Rates?


Hamid FaruqeeBy Hamid Faruqee

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.

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For Africa, Good Policies Bring Good Prospects


Antoinette SayehBy Antoinette M. Sayeh

(Version in Français)

Once again, the latest review of growth prospects for sub-Saharan Africa shows that the region’s economy is in strong health. Growth in the region is set to pick up to 5½ percent in 2014 compared to 4.9 percent last year (see Chart 1). My view is that this growth momentum will continue over the medium term if countries rise to new challenges and manage their economies as dexterously as they have over the past decade or so.

So what explains this continued strong growth performance? Apart from good macroeconomic policies in the region, the growth has been underpinned by investment in infrastructure, mining, and strong agricultural output. And favorable global tailwinds—high demand for commodities and low interest rates—have played a major supporting role.

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Unwinding Public Interventions in the Financial Sector


By José Viñals

The IMF held a high-level conference last week on unwinding public interventions in the financial sector. Insightful discussions took place among policymakers, academics, and the private sector, highlighting several areas where a broad consensus appears to be emerging, as well as some challenges that policymakers are about to face.

Converging views

There was broad agreement that an exit strategy from monetary, fiscal, and financial sector interventions is essential. The pivotal goal of this exit process would be to arrive at a condition of price stability, fiscal sustainability, and financial stability, including a new financial landscape that is much safer than currently exists. This will provide the necessary underpinnings for stable, strong, and balanced growth.

It will be relatively easy to unwind financial interventions that have sunset clauses or have penal rates so they become unattractive as market conditions normalize (photo: Sajjad Hussain/AFP/Getty Images)

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Exit from Crisis Interventions


By José Viñals

Governments and central banks rose to the challenge as the 2008–09 financial crisis unfolded, taking unprecedented steps to avoid the collapse of the global financial system and avert a devastating impact on the global economy. Liquidity support, capital infusions, and public guarantees were provided to banks and other financial institutions; policy interest rates were lowered substantially; and fiscal stimulus packages were introduced.

On top of this, international institutions like the IMF enhanced their lending facilities to help emerging markets and developing economies better cope with the threats posed by the crisis.

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