Interest rates likely to fall to pre-pandemic levels, says IMF

In a blog post, the IMF reference falling productivity and an ageing workforce as the main drivers of this predicted drop in interest rates, which they say will only happen after inflation calms down.

The Bank of England have been raising rates since December 2021, going from 0.1% to 4.25%.

Many other central banks across the world have been implementing similar measures in order to curb inflation.

A side-effect of this plan has been a sharp rise in mortgage payments for households across the UK.

In the UK, inflation is at its highest level for nearly 40 years fuelled by rising energy prices and soaring food and beverage costs.

Several factors are fuelling the country’s inflation, including the Russian invasion of Ukraine, which has sharply driven up energy costs.

UK inflation rose to 10.4% in February, an unexpected rise.

In a blog post, the IMF: “Overall, our analysis suggests that recent increases in real interest rates are likely to be temporary. When inflation is brought back under control, advanced economies’ central banks are likely to ease monetary policy and bring real interest rates back towards pre-pandemic levels.

“How close to those levels will depend on whether alternative scenarios involving persistently higher government debt and deficits, or financial fragmentation materialize. In large emerging markets, conservative projections of future demographic and productivity trends suggest a gradual convergence towards advanced economies’ real interest rates.”