The International Monetary Fund said Monday that the recent increase in real interest rates is likely to be temporary. Once inflation is under control, central banks of countries with developed economies will loosen monetary policy and return real interest rates to pre-pandemic levels.
This means that after the most aggressive tightening of monetary policy in the last decade, interest rates will gradually decline and approach zero in countries with developed economies. Developing countries will also see a decline.
This analysis was published by the IMF as part of its latest World Economic Outlook.
The IMF noted that natural rates remain low in advanced economies, while emerging market economies will continue to decline.
The natural rate is the benchmark for central banks, which use it to assess their monetary policy stance.
This is also important for fiscal policy, as governments typically repay debt over decades, and the natural rate in the long term serves as an anchor that helps determine borrowing costs and the sustainability of public debt.
This study eases some of the pressure associated with banking concerns. Since the banking crisis amid higher interest rates has increased the risk of tightening credit conditions and borrowing costs.
With the subsequent easing of monetary policy, governments and businesses will be able to take out cheaper loans.
According to IMF research, global growth will be below 3% in 2023. And it will remain at this level for the next five years. This is considered a weak forecast. In 2023, India and China will account for half of global growth, while approximately 90% of countries with developed economies will experience a slowdown in growth rates.
