This week we witnessed a number of developing countries raise interest rates, and it’s believed others could follow suit. Amongst developed markets, Norway has stated it will bring forward its interest rate hike with two more likely in early 2022.
So, what’s going on? Many believe this is largely down to the huge US fiscal stimulus combined with successful vaccination programmes in countries like the US, UK and Norway. In Norway’s case, their gigantic $1.3trn Sovereign Wealth Fund has backed a record amount of fiscal measures.
The resulting rise in commodity-price inflation, which is partly driving bond yields, is forcing investors to move their money around. One way to readjust this is by raising interest rates to deter existing capital from leaving while also trying to encourage new capital to flow inwards.
This can be a problem for emerging markets because many of their economies are heavily reliant on exports. If interest rates rise, foreign exchange rates often appreciate too, making exports more expensive. If foreign exchange rates do not stabilise in response to rising interest rates, there’s the added issue of higher borrowing costs locally.
The Week That Was…
In the UK, hand gel, dumbbells and men’s loungewear bottoms will be added to the Inflation Index starting this month. While white milk chocolate and sandwiches (purchased at staff canteens) are out.
The MPC voted unanimously to keep the Bank Rate unchanged at 0.10% in the UK, as did the central bank in Norway. Although the latter has brought forward the timing of rate hikes expecting to raise its benchmark deposit rate in the “latter half” of this year. Whilst central banks in Turkey and Russia raised rates by 2% and 0.25% respectively.
Meanwhile in Japan, two-thirds of firms want the BoJ to keep rates steady and curb increases in long-term rates according to a Reuters Survey.
Skybound Wealth Management Limited FF2, MBP3, Meadowhall Business Park, Carbrook Hall Road, Sheffield, S9 2EQ
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The guidance and/or advice contained within this website are subject to the UK regulatory regime, and are therefore targeted at consumers based in the UK. Skybound Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Registered Office - MBP3, Meadowhall Business Park, Carbrook Hall Road, Sheffield, S9 2EQ. Registered Number 04479650, England. Financial Services Register Number 217994.
The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk. Neither Skybound Wealth Management Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.