EFE, Washington
The International Monetary Fund (IMF) estimated on Monday that interest rates will fall back to pre-pandemic levels once inflation is back under control.
"Overall, our analysis suggests that recent increases in real interest rates are likely to be temporary. Once inflation is back under control, central banks in advanced economies are likely to ease monetary policy and bring rates back to pre-pandemic levels," the Fund noted in its economic outlook report.
Although the full report will be presented tomorrow, a chapter was released today that examines the evolution of the natural interest rate in eight of the largest advanced and emerging economies, which represent approximately 70% of global GDP.
According to the IMF, natural rates in advanced economies are likely to remain low after inflation is brought under control, while as emerging market economies adopt more advanced technology and increase productivity, rates will also decline.
How close interest rates are to pre-pandemic levels (around zero) will depend on whether alternative scenarios materialize involving persistently higher public debt and deficits or financial fragmentation, the IMF said.
Thus, the Fund speaks of an alternative scenario in which public debt continues to rise since "government support may be difficult to withdraw" and as a result, rates could remain high for some time.
Furthermore, although the transition to a cleaner economy would tend to push global natural rates down in the medium term, "deficit financing of public investment in green infrastructure and subsidies could offset and even reverse this outcome," the Fund warns.
Financial and commercial fragmentation
Another risk he points out is the increasing financial and trade fragmentation, which, if it continues to grow, "would raise the natural rate in advanced economies and reduce it in emerging market economies.".
"Individually, these scenarios would only have limited effects on the natural rate, but a combination, especially of the first and third scenarios, could have a significant long-term impact," the Fund warns.
The IMF and the World Bank are holding their spring meetings this week in Washington, where executives from both institutions, as well as ministers and other economic authorities, are meeting to analyze the global economic situation and future prospects and challenges.
