World Bank: interest rates will remain high for longer

As a result of the global increase in inflation due to the pandemic, central banks—in this part of the world, mainly influenced by the United States Fed—chose to raise interest rates to levels not seen in several decades to mitigate this phenomenon.

Ajay Bangapresident of the World Bank, acknowledged that inflation has begun to decline and “the world economy is better than thought a year ago,” but It does not imply that interest rates will decline and, on the contrary, it believes that they will remain high for longer.

“This can be a complicated event both for investments and for people who lived for many years in an environment with low interest rates,” he said on the sidelines of the annual meetings of the World Bank and the International Monetary Fund (IMF). Banga maintains that countries must be careful with their macroeconomic and fiscal policies to “come out better positioned.”

For example, the Fed maintains interest rates between 5.25% and 5.50%—their highest value in two decades—but does not rule out continuing to raise it; while in Peru, the BCRP lowered it from 7.50% to 7.25%—in line with countries like Brazil and Chile, and does not imply “a cycle of successive reductions”—.

While Indermit Gill, chief economist of the World Bank Group, pointed out that despite the shocks, “no large economy is in trouble,” but the concern comes from the slowdown in growth in a context of high interest rates, which throws us ” to much lower levels before the crisis”.

“You have to look at what happened the last time the Fed raised the rate. In the ’70s, which took a long time, it wasn’t a one or two year thing. The cycle of greater restriction (on credit) will take longer and left 24 economies bankrupt. “Countries that did not manage their debts well ended up in problems,” he added.