Rising interest rates: what the experts think
● Here in Blighty…
The Bank of England was expected by most economists to raise interest rates this week “for only the second time since the 2008 crash” – from 0.5% to 0.75%, said Phillip Inman in The Observer. As ever, commentators were divided ahead of Thursday’s announcement. Bring it on, said Alex Brummer in the Daily Mail. True, having “dropped to the bottom of the G7 growth league”, the UK is hardly “going like a bomb”. But the economy is “far from moribund” – as evidenced by an unemployment rate of just 4.2% and other encouraging data. “There comes a moment when the Bank must return to targeting inflation” (currently above 2.4%) and recognise that “keeping rates too low for too long” has a distorting effect. I’m not convinced, said Larry Elliott in The Guardian. A rate rise now is “risky”, and there is “no real reason for it” – bar the fact that “the next eight months will see Brexit talks reach a climax, and the inevitable uncertainty makes this the last opportunity to raise rates for some time”.
● … And more broadly
Yet, significant as it may be, a hike in Britain is the last thing troubling markets more broadly, as central banks globally begin to tighten, said Tom Knowles in The Times. In a week packed with centralbank policy decisions – three central banks looked set to raise rates – Citigroup analysts warned that “storm clouds are gathering” over the world economy, and that markets may be “too complacent”.
● A tweak in Japan
Attention has focused particularly on “turbulence” in the Japanese bond market which, according to Citi’s Mark Schofield, has a “considerable track record in triggering broader reactions”. The excitement was sparked by a small “tweak” in monetary policy (the Bank of Japan has raised its cap on bond yields from 0.1% to 0.2%) – “a tiny move” that, in effect, represents “a very, very small hike in rates”, said John Stepek on Moneyweek.com. Yet, clearly, it is not that easily dismissed. “As with every other central bank these days, the focus is now on how monetary policy can get tighter without blowing things up.” Rising interest rates are already having an effect on global housing markets. “It’ll be interesting to see what starts to struggle next.”