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Interest Rate

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Interest Rate

  1. 1. Increasing Interest Rates Against
  2. 2. Against • Inflation is still too low. Needs to gain traction before BOE will consider rising rates. Official target is 2%. Recent rise to 0.3% (quarterly) is a step in the right direction. • Accommodative policies helped stage the recovery. Dovish rhetoric and stimulus such as low rates and QE from central banks keep growth and markets ticking over. Money was invested in speculative vehicles rather than in communities, services and infrastructure. • Rising too soon could cause trouble in equity markets. When the FED recently rose rates equity markets experienced losses. Asset prices were arguably inflated as a central bank policy had created bubbles. Attempts at Renormalisation too could cause more pain in markets. • By keeping rates low the UK can export goods at cheaper, more competitive prices. • Thus Increasing trade and helping the economy to grow.
  3. 3. Against • NIRP- Some central banks adopting policy including Japan. Rates have global implications. -Continuity • Low rates are good for borrowers • Allows a greater level of disposable income for mortgage holders which is supportive of the economy • Inflation is one of the main prerequisites to higher rates along with a stable economy. • Ideally calmer markets are also required conditions for a rise as with all the current volatility It is not a great time for hawkish sentiment. • Oil price is too low. The price of oil needs to rise, promoting inflation and prompting the need to raise rates.
  4. 4. • Have central banks left it too late to raise? • Have central banks lost control?