Interest rates likely to fall to pre-Covid levels, IMF predicts
A new International Monetary Fund (IMF) forecast suggests that interest rates in major economies are expected to fall back to pre-pandemic levels. It says low productivity and ageing populations will be factors likely to reduce inflation, which will result in central banks easing monetary policy.
The Bank of England has raised interest rates since December 2021 from 0.1% to 4.25%, with the UK experiencing its highest inflation rates in almost 40 years. Other central banks – in the US, Europe and other nations, have also raised interest rates to combat inflation.
However, the IMF states that “recent increases in real interest rates are likely to be temporary” once inflation is brought under control.
The IMF prediction does not suggest when interest rates will fall back to lower levels but they did suggest factors such as an ageing population – older people tend to spend less and low productivity, which measures how many goods and services are produced, as two major factors that will bring inflation down.
The Bank of England expects inflation to fall sharply over the rest of the year due to the government’s continuing help with household heating bills through the Energy Price Guarantee scheme, as well as falling wholesale gas prices.
