The uncertain duration of high interest rates
Tuesday, 17 October 2023
Hello Future is blue readers,
Welcome to our newsletter about European economic affairs bringing together top experts from academia and think tanks to discuss the most pressing economic challenges of today. Future is Blue is promoted by Funcas.
Today we are taking a deeper look at the impact of living in an era of higher interest rates.
Monetary policy remains immersed in an intense battle to stem inflation. We are seeing a quick succession of interest rate increases and, consequently, raising eurozone borrowing rates across the board. Credit has already contracted, and the cost of debt has increased, but the duration of the tightening cycle remains unclear as monetary authorities have signaled that their policy approach remains conditional upon the path of inflation.
In today's new podcast episode we feature Alice Faibishenko, Senior Advisor at Funcas, to analyse the implications of high interest rates for financial institutions, public bodies and other actors. This subject is covered in the latest SEFO report by Funcas. A link to the report is provided below.
See at the end what we are reading these days.
New podcast episode available!
In today's Future is Blue podcast episode, we cover the following questions about interest rates:
- How the current environment compare by historical standards
- Impact of high interest rates on government debt
- Impact on banks.
- Complexities on forecasting a U-turn in monetary policy
The latest Spanish and International Economic and Financial Outlook report by Funcas includes the article "One year of rate increases: Impact assessment". Other topics covered in the report include fiscal adjustments in Europe, the allocation of Next Generation EU funds in Spain and stress testing of banks in an era of high interest rates.
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What we are reading
Has the IMF lending become too expensive for its own good? The case for a lending cap rate
The UN recently warned that 52 countries – encompassing almost 40 per cent of the developing world – are in serious debt trouble.1 But the IMF is struggling to roll out its traditional bailout programmes to countries in economic turmoil.
What will it cost the European Union to pay its economic recovery debt?
Servicing the EU debt until 2058 seems feasible, despite increased borrowing costs, but member countries must make choices about budget funding. A quarter of global emissions are now covered, and the share is rising fast.
How carbon prices are taking over the world
A quarter of global emissions are now covered, and the share is rising fast.
The Potential Impact of Ukrainian Accession on the EU’s Budget
Good overview of the budgetary implications that would bring the accession of Ukraine
Have a nice rest of the week.
Raymond Torres
Funcas Europe Director