In any economy, banks play the critical role of re-allocating capital, from surplus areas into deficit areas. It is a role that sees them take deposits from the public and use the same to issue loans to businesses, both large and small. But that process hasn’t been happening much in Sub-Saharan Africa. Instead, banks, motivated by risk-aversion, have been funneling liquidity into the coffers of governments through government-issued debt securities. SSA banks must get back to the business of lending to the private sector if they are to escalate shareholder returns.
As economic conditions return to “normal” in the industrial world, policy interest rates will inevitably rise from zero to “normal”—but not necessarily in Latin America and the Caribbean. Central banks in LAC will need to tailor their monetary-policy decisions to tackle the three-pronged challenge of currency depreciation, higher inflation and deceleration in economic activity, as capital flies away from emerging markets.
Quantitative easing and low interest rates were to work together to ignite roaring economic growth following the last financial crisis; in some parts of the world, monetary policy has set interest rates at zero (even below), but growth remains elusive and rock-bottom inflation rates coincide with interest rates. What went wrong?
The Millennial generation has not carried out personal-financial transactions in what was historically considered a normal interest-rate economic environment. How are near-zero interest rates affecting their financial decisions, and how will their decisions impact the economy and monetary policy of the future?
United States President Donald J. Trump received an unexpected valentine last week from Janet Yellen, chair of the Board of Governors of the Federal Reserve System. The higher interest rates President Trump pledged through jawboning the Federal Reserve are coming.
Since the global financial crisis, central banks have resorted to monetary policy to pull their economies out of the abyss. But the time may have arrived for fiscal policy to share centre stage as the limitations of monetary policy become more apparent, and national decision-makers turn away from further fiscal-austerity measures toward stimulus.
Anemic economic growth in advanced economies has led central banks to prescribe loose monetary policy that has not produced the cure. The problem may lie more on the supply than demand side; digital innovation in industrial operations if properly implemented could lead to the transformative revolution that will boost productivity and revive economic performance.
Japan boasts the world’s third-largest economy, and yet it has been stalled by deflation, low wage growth and slowing GDP. Prime Minister Shinzo Abe’s three-arrow Abenomics policy, introduced four years ago, was meant to counter years of economic stagnation, but despite some success, it may be time to re-evaluate the plan.
The November elections are soon approaching for Americans, and it now looks increasingly like a two-horse race for the US presidency. Both Hillary Clinton and Donald Trump have emerged as clear contenders in the last few weeks, leaving their rivals by the wayside.
Just a few years ago, the idea of negative interest rates was considered by many to be no more than an academic curiosity. After all, why would anyone pay for the privilege of lending money?