But this approach assumed that even if global real interest rates rose, any increase would be gradual and temporary. The possibility that a sharp rise in interest rates would dramatically increase interest payments on existing debt, including debt held by central banks as bank reserves, was simply dismissed. While the world can certainly adapt to higher interest rates, the transition is still ongoing. The European Central Bank’s “whatever it takes” bailout policies appeared costless when interest rates were near zero, but it is unclear whether the bloc can survive future crises if real interest rates remain high. Moreover, while major emerging economies have managed to cope with high interest rates so far, they face enormous fiscal pressures.

Source: Stuff December 06, 2023 15:03 UTC