Interest rates to return to pre-pandemic levels when inflation is tamed: IMF

The International Monetary Fund has said that “recent increases in real interest rates are likely to be temporary".

Related topics:  Finance News
Rozi Jones | Editor, Barcadia Media Limited
11th April 2023
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"The property market definitely seems more positive than it was late last year, and lower rates would further increase confidence."

In a new report, the IMF said that "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".

It added: "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."

Brokers responded to the announcement with mixed views.

Ashley Thomas, director at Magni Finance, said: "If this materialises, it would have a positive impact on the UK housing market. The sharp increase in interest rates has impacted most people, from first-time buyers to high net worth individuals. The property market definitely seems more positive than it was late last year, and lower rates would further increase confidence. It certainly looks like we are close to the peak for the base rate, and once inflation is down we will be in a much better position."

David Robinson, co-founder at Wildcat Law, commented: "Talk of returning to pre-pandemic interest rates is like Blackburn United supporters talking of winning the Premier League again. Yes it's a potential outcome but not one that most people would put a serious bet on. The prolonged period of record low interest rates should not be allowed to warp the historic data or to show a trend that does not really exist. Yes, we may see a small reduction in long-term average rates but that brings us back to roughly where we are now. Our base rate will continue to be driven, to a large extent, by the strength of Sterling and that is heavily dependent upon the US dollar."

Rohit Kohli, operations director at The Mortgage Stop, added: "I appreciate that it's April but I thought jokes were supposed to stop on the 1st. We've spent the past six months talking about how it's unlikely we'll see super low-interest rates again for a generation, and most "experts" believed that base rates of around 2% make for a more effective tool to help manage the economy, providing capacity for central banks to move in either direction in short bursts. We will see rates reduce in time but I think this type of messaging can do more harm than good in the short to medium term as it could stop some of the green shoots of recovery we've seen in the property market recently as people pause or delay their purchases."

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