Low interest rates may be the new normal

2018 ◽  
Keyword(s):  
Interest Rates ◽  
Trade Deficit ◽  
Content Type ◽  
Fiscal Effort ◽  
Asset Bubbles ◽  
Forward Guidance ◽  
Downward Pressure ◽  
The Us ◽  
Low Interest Rates ◽  
New Research

Subject Modelling lower rates for longer. Significance The ‘secular stagnation' thesis argues that as population growth slows, the need of businesses to invest in plant and equipment slows and the supply of funds from households grows as they save more, putting downward pressure on interest rates. New research attempts to quantify this hypothesis and to show what it would take to go back to 'normal'. Impacts 'Forward guidance' will be of little use if there is a recession as there would be no reason to expect an increase in policy rates. Asset bubbles would likely be a feature of any sustained non-fiscal effort to engineer a deeply negative real interest rate. The US trade deficit, usually a welcome source of lower rates, will in this context exacerbate the zero-lower-bound issue in a recession.

US manufacturing slump will hinder growth into 2016

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Manufacturing Sector ◽  
Trade Deficit ◽  
Consumer Durables ◽  
Content Type ◽  
Labour Unions ◽  
Political Clout ◽  
The Us ◽  
Low Interest Rates ◽  
Merchandise Trade

Subject Outlook for US manufacturing. Significance Decline in the US manufacturing sector has dampened the country's broader recovery from the 2007-09 recession and has significant regional implications for growth and employment. The political clout of manufacturers and their affiliated labour unions will play a significant role in the US domestic debate surrounding ratification of the Trans-Pacific Partnership (TPP) trade pact. Impacts Faltering manufacturing production, high inventory levels and a deteriorating merchandise trade deficit will likely slow US economic growth. Consumer durables, automotive products and capital goods will benefit from low interest rates, but face competition from cheaper imports. Deteriorating profit margins will reduce industrial investment as well as overall levels of employment in manufacturing. The decline in US manufacturing will boost protectionist voices in Congress and politically bolsters TPP opponents.

Philippine twin deficits will likely widen this year

2019 ◽  
Keyword(s):  
Interest Rates ◽  
Trade Deficit ◽  
Social Policies ◽  
Content Type ◽  
China Trade ◽  
Downward Pressure ◽  
Midterm Elections ◽  
The Us ◽  
The Government ◽  
Agricultural Imports

Significance Spending on infrastructure and populist social policies signed into law ahead of the May midterm elections are putting pressure on the Philippine budget. Impacts More expensive social policies are likely before the 2022 presidential election. Further taxes will likely prompt popular protests targeting the government. The US-China trade conflict and changing Chinese consumption patterns could further dampen exports. A rice tariff law signed into law last month will likely boost agricultural imports. The widening trade deficit will put downward pressure on the peso and upward pressure on interest rates.

US energy high-yield bonds spur default risk

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Default Risk ◽  
Oil Price ◽  
High Yield ◽  
Content Type ◽  
The Past ◽  
The Us ◽  
Low Interest Rates ◽  
Investment Grade ◽  
Energy Companies

Subject Impact of the oil price drop on energy high-yield bonds. Significance The over 50% oil price drop since June 2014 is hitting bonds issued by energy companies, particularly those issued by sub-investment grade corporates. The US high-yield bond market has been growing rapidly over the past five years. The shale boom has generated considerable investment, mainly funded through the issuance of these bonds which benefit from historically low interest rates. As the oil price has plunged, the spread over Treasury yields paid by the average issuer in the energy subsector has more than doubled between July and the December 2014 peak. Impacts Yields currently offered by the energy subsector are not far from pricing in a default scenario. Persistently low oil prices will further darken the outlook for the energy subsector and the high-yield market generally. A possible default cycle in the energy sector could accelerate outflows, overstretching the sector further.

Adoption of yield-curve control could aid US recovery

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Balance Sheet ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Forward Guidance ◽  
Reserve Bank ◽  
The Us

Subject Yield-curve control. Significance The US Federal Reserve (Fed) is contemplating yield-curve control (YCC), a policy pursued by the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) alongside quantitative easing (QE) and forward guidance. A central bank does this by capping the yields on government bonds of a chosen maturity through unlimited bond purchases. This supports the economy by reducing borrowing costs for financial institutions, households and businesses. Impacts By providing transparency over a central bank’s actions, YCC would be likely to reduce the volatility of long-term interest rates. YCC adds to the Fed balance sheet; the Fed will need a credible exit strategy to cut market volatility and the risk of Fed capital losses. A sharp uptick in inflation may put upward pressure on long-term yields, necessitating higher Fed purchases to maintain its targeted peg.

Trade uncertainty makes interest rates less effective

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Developed Countries ◽  
The United States ◽  
Content Type ◽  
Forward Guidance ◽  
China Trade ◽  
The Us ◽  
Jackson Hole ◽  
Market Outlook

Subject Financial market outlook. Significance At the annual gathering last month of the world’s central bankers in Jackson Hole, Wyoming, policymakers acknowledged that the economic uncertainty that the US-China trade conflict is generating was undermining the efficacy of monetary policy. James Bullard, the president of the St Louis Federal Reserve (Fed), warned that developed countries are experiencing a “regime shift” in economic conditions, in which trade-war-induced uncertainty -- and the unpredictability of US policy more broadly -- is becoming a permanent feature of policymaking, sapping the potency of forward guidance and overburdening monetary policy. Impacts Since the US tariff increase in May, the global stock of negative-yielding bonds has surged above 16 trillion dollars and will rise further. The dollar is at its highest since May 2017 and seems likely to rise further as US growth is far outpacing other major developed markets. The renminbi/dollar rate fell the most on record in August, raising capital outflow risks, most likely to the United States or Japan.

‘America First’ trade unravels as market risks mount

2018 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Emerging Market ◽  
The United States ◽  
Content Type ◽  
Market Risks ◽  
Bond Yield ◽  
Downward Pressure ◽  
The Us ◽  
Technology Stocks

Subject Outlook for US financial markets. Significance Since October, the benchmark S&P 500 index has fallen by more than 5% as part of a broad-based sell-off of financial assets. Indications that the ‘America First’ inspired trade agenda is unravelling include concerns that rising US interest rates will dampen economic growth and corporate earnings, and a rout in technology stocks, the high-flying sector that powered the US equity rally from mid-May to late-September when US stocks significantly outperformed their European, Japanese and Emerging Market (EM) peers. Impacts Lower oil prices will extert downward pressure on inflation. Efforts by China and the United States to wean themselves off mutual dependence in tech could escalate, curbing the US tech stocks bull run. The first inversion of the bond yield curve since 2007, will fuel speculation that the Fed will slow monetary tightening. EM equities will remain volatile, despite have risen by nearly 9% since October 29, partly reversing their 2018 sell-off.

Australia budget keeps defence spending commitments

2021 ◽  
Keyword(s):  
South China Sea ◽  
Interest Rates ◽  
Fiscal Year ◽  
National Politics ◽  
Content Type ◽  
Defence Spending ◽  
Low Interest Rates ◽  
Defence Expenditure ◽  
Conducive Environment ◽  
Made In

Significance With an election due soon, the governing Liberal-National Coalition’s pledge to ring-fence the defence spending commitments made in 2016 was under some pressure. However, defence spending in fiscal year 2021/22 will grow by over 4% in real terms and stay above the symbolic level of 2% of GDP. Impacts Growing popular and bipartisan concern with Chinese aggression is a conducive environment for increased defence spending. Low interest rates and a stronger Australian dollar are also supporting sustained levels of defence expenditure. Washington may increase pressure on Australia to conduct freedom of navigation exercises in the South China Sea. Major business groups are concerned that increased criticism of China in national politics will produce yet more punitive backlash.

Low interest rate environment: inventory management in Finland and Baltic states

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olli-Pekka Hilmola ◽  
Weidong Li ◽  
Andres Tolli
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Customer Service ◽  
Inventory Management ◽  
Global Financial Crisis ◽  
Recent Decade ◽  
Baltic States ◽  
Content Type ◽  
Low Interest Rates ◽  
Rate Environment

PurposeFor decades, it was emphasized that manufacturing and trading companies should aim to be lean with very small inventories. However, in the recent decade, time-significant change has taken place as nearly all of the “old west” countries have now low interest rates. Holding inventories have been beneficial for the sake of customer service and for achieving savings in transportation and fixed ordering costs.Design/methodology/approachIn this study, inventory management change is examined in publicly traded manufacturing and trade companies of Finland and three Baltic states (Estonia, Latvia and Lithuania) during the years 2010–2018.FindingsInventory efficiency has been leveled off or falling in these countries and mostly declining development has concerned small- and medium-sized enterprises (SMEs). It is also found that inventory efficiency is in general lower in SMEs than in larger companies. Two companies sustaining in inventory efficiency are used as an example that lean has still significance, and higher inventories as well as lower inventory efficiency should not be the objective. Two companies show exemplary financial performance as well as shareholder value creation.Research limitations/implicationsWork concerns only four smaller countries, and this limits its generalization power. Research is one illustration what happens to private sector companies under low interest rate policies.Practical implicationsContinuous improvement of inventory efficiency becomes questionable in the light of current research and the low interest rate environment.Originality/valueThis is one of the seminal studies from inventory efficiency as the global financial crisis taken place in 2008–2009 and there is the implementation of low interest rates.

The current farm downturn vs the 1920s and 1980s farm crises

2018 ◽  
Vol 78 (4) ◽  
pp. 396-411 ◽  
Author(s):  
Wendong Zhang ◽  
Kristine Tidgren
Keyword(s):  
Interest Rates ◽  
Agricultural Sector ◽  
Balance Sheet ◽  
Real Income ◽  
Economic Downturn ◽  
Agricultural Credit ◽  
Content Type ◽  
Farm Crisis ◽  
Low Interest Rates ◽  
Sudden Collapse

Purpose The purpose of this paper is to examine the current farm economic downturn and credit restructuring by comparing it with the 1920s and 1980s farm crises from both economic and regulatory perspectives. Design/methodology/approach This paper closely compares critical economic and regulatory aspects of the current farm downturn with two previous farm crises in the 1920s and 1980s, and equally importantly, the golden eras that occurred before them. This study compares key aggregate statistics in land value, agricultural credit, lending regulations, and also evaluates the situations and impacts on individual farmer households by using three representative case studies. Findings The authors argue that there are at least three economic and regulatory reasons why the current farm downturn is unlikely to slide into a sudden collapse of the agricultural markets: strong, real income; growth in the 2000s, historically low interest rates; and more prudent agricultural lending practices. The current farm downturn is more likely a liquidity and working capital problem, as opposed to a solvency and balance sheet problem for the overall agricultural sector. The authors argue that the trajectory of the current farm downturn will likely be a gradual, drawn-out one like that of the 1920s farm crisis, as opposed to a sudden collapse as in the 1980s farm crisis. Originality/value The review provides empirical evidence for cautious optimism of the future trajectory of the current downturn, and argues that the current downturn is much more similar to the 1920s pattern than the 1980s crisis.

Political pressure on Turkey's Central Bank will go on

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Sharp Decline ◽  
Content Type ◽  
Balance Sheets ◽  
The Past ◽  
Consumer Prices ◽  
Highly Sensitive ◽  
The Us ◽  
External Sources ◽  
Run Up

Significance The CBRT is expected to respond at its regular monthly interest rate-setting meeting to the fall in inflation in January to 7.2%. However, while the nearly 50% slide in oil prices since last June has led to a sharp decline in headline consumer prices, core inflation has been hovering near 9% for the last four months -- significantly above the CBRT's 5% inflation target. Just as importantly, Turkey's currency has fallen to a record low against the dollar, losing 7% over the past month because of the increasing politicisation of Turkish monetary policy and mounting expectations that the US Federal Reserve (Fed) will begin hiking interest rates as early as June, putting Turkish assets under renewed strain. Impacts CBRT independence is becoming one of the main focal points for market concern about emerging markets. Heavy reliance on external sources of finance will leave Turkey highly sensitive to resurgent dollar and increased US Treasury yields. Renewed lira weakness is likely to persist in the run-up to elections in June, which could also coincide with rising US interest rates. That would put further pressure on the balance sheets of Turkey's heavily indebted corporate sector.

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