Report
Patrick Artus

How long can central banks keep real interest rates very low?

Central banks (we look at the OECD and the world) currently want to keep real interest rates very low, to ensure borrower solvency, to support investment, and to drive up the employment rate. But population ageing is expected to lead to a decline in the savings rate and therefore to a rise in the real interest rate. What will then happen with monetary policies? As long as there is underemployment, expansionary monetary policies can keep real interest rates low; the additional savings needed to finance investment are then provided by the additional production; But when there is full employment, population ageing will then cause the real interest rate to rise; if central banks fight against this rise, they will give rise to inflation (in goods or assets) but not to a fall in real interest rates. This confirms the scenario that expansionary monetary policy can be sustained as long as full employment is not reached, but not afterwards.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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