Report
What happens when rising inflation leads to lower real interest rates?
If inflation rises and central banks really want to combat inflation, they must raise real interest rates in response to rising inflation, to curb demand for goods and services. But today, central banks are much more cautious: when inflation rises, they certainly raise nominal interest rates, but less than the rise in inflation and real interest rates fall. If the rise in inflation leads to a fall in real interest rates, then many consequences emerge: Inflation reduces debt ratios; Inflation drives up asset prices (equities, real estate, real assets, etc.) and holding these assets effectively protects against inflation; Monetary policy does not help reduce inflation.
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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.
Patrick Artus
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