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【雅思阅读杂志赏析】经济学人Why interest rates can be expected to stay low for years
文章来源:国际部   点击数:   更新时间:2017-05-05
【雅思阅读杂志赏析】经济学人Why interest rates can be expected to stay low for years

CENTRAL bankers have a reputation for snatchingaway the punch bowl just as the party gets going. So, almost as soon as Britain's economystarted to recover, commentators and markets started fretting about when interest rates wouldrise. Mark Carney, the Bank of England's governor, has tried to soothe them with “forwardguidance”, in effect promising to hold off until the economy recovers. But Mr Carney alsowhispered something else: that rates would stay unusually low even when they do budge. Thepunch bowl will go, he suggested, but there will still be plenty of booze around.


Since the Bank of England was founded in 1694 its main interest rate has bounced around anaverage of 5%. It stood at 5.75% when the financial crisis struck in 2007; since 2009 it hasbeen at a record low of 0.5%. But as Britain's economy recovers, Mr Carney expects rates tosettle below the historical norm, and points to market expectations of 2-3%. That is only ashade higher than the bank's 2% inflation target.


The bank believes Britain's “equilibrium interest rate”—the rate needed to keep inflation andeconomic growth on an even keel—is being depressed by three things. One is the ongoingfiscal contraction. With the state using a shrinking share of resources, the private sector hasto expand faster to take up the slack. A lower interest rate is needed to achieve that.


The second has to do with the country's convalescing banks. During the crisis the spreadbetween the central bank's policy rate and the interest rates commercial banks charged theircustomers for loans jumped. Although the spread has fallen since, it remains much higher thanit was before the crisis. So the Bank of England need not raise its rate so high to generate agiven level of private-sector interest rates.


The final factor is the rest of the world. Britain's openness, through trade and finance, ties itto foreign economies. The euro-zone crisis has hit the country's exporters and banks. “Secularstagnation”, a notion recently popularised by Larry Summers of Harvard University, might alsobe at play: falling investment demand in advanced economies, combined with a glut ofsavings in emerging markets, has pressed down on equilibrium interest rates throughout theworld.


These pressures seem unlikely to abate soon. Britain's major political parties are allcommitted to eliminating the fiscal deficit over the next parliament. Credit spreads areunlikely to shrink to their pre-crisis lows, which reflected an overly sanguine attitude tofinancial risk. The euro zone faces a lengthy slog back to health. And if, as Mr Summerssuggests, global stagnation persists, the downward pressure on Britain's equilibriuminterest rate might even increase.


A persistently low bank rate would be bad for savers but a boon for borrowers. Britain's 9m orso mortgage-holders are sensitive to the bank's policy rate: the average new mortgage isfixed for just two years (compared with 27 years in America) after which it tends to track thebank's rate. Matthew Whittaker of the Resolution Foundation, a think-tank, calculates that thedifference between a bank rate of 3% in 2018 and a rate of 5% is that 620,000 fewerhouseholds would be in “debt peril”, defined as spending more than half their disposableincome on debt payments.


The prospect of rates remaining low for years should also improve companies' behaviour. Britishinvestment is startlingly weak at present—still 20% below its pre-crisis peak, and lower than inany other G20 country as a share of GDP. The expectation of more cheap finance, togetherwith dwindling spare capacity and rising demand, ought to entice firms to build and buy. TheBank of England predicts an extraordinary 43% rise in business investment by 2016, whichwould boost both demand and productivity.


But a low equilibrium interest rate should make Mr Carney nervous. Bank rates cannot easilybe cut to below zero. A new normal of 2-3% would thus leave the bank with little space to cutrates when future shocks hit. Britain's emergency monetary experiments, such asquantitative easing and forward guidance, are known as “unconventional”. In time theycould become part of the new normal, too.


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