What will happen to the economy if the policy rate hikes go through?
The Reserve Bank of India (RBI) may hike policy rate further by 25 basis points (bps) in its next meeting, as inflation has picked up moderately and risks to the financial stability have increased, according to a Reuters poll. Here are the reasons behind it.
- What will happen to the economy if the policy rate hikes go through?
- What are some potential impacts of a possible policy rate hike?
- How could a policy rate hike affect the Philippine economy?
The Federal Reserve is widely expected to raise interest rates this week and further hikes are likely in the months ahead. The hikes, if implemented, would reflect a gradual return to normal levels of monetary policy after nearly a decade of near-zero rates.
If enacted, these rate hikes would represent only a modest tightening of monetary policy – far from what is needed to support long-term economic growth. In fact, closer examination suggests that there may be little justification for increasing interest rates at this time given current conditions in the economy.
What are some potential impacts of a possible policy rate hike?
The current policy rate of 0.5% is set to expire at the end of the month, and many analysts believe that the central bank could hike this rate further if recent economic indicators continue to show improvement. The potential impacts of a possible policy rate hike can vary depending on the magnitude and timing of the increase, but here are some key reasons why economists are increasing their expectations for a move:
- Higher interest rates will make borrowing more expensive for businesses and consumers, which could lead to slower economic growth.
- Higher rates could also discourage investment by companies, potentially slowing down the pace of economic expansion.
- Higher borrowing costs could also lead to increased inflation pressures in the economy, which would ultimately dampen consumer spending and lower business profits.
How could a policy rate hike affect the Philippine economy?
The Philippine economy is currently going through a challenging phase and any policy rate hike by the Monetary Board of the Philippines (SBP) would only make matters worse.Higher borrowing costs will lead to higher consumer prices, which in turn would dampen domestic demand and investment, resulting in a decline in GDP growth.The humanitarian crisis in Mindanao – where a Muslim separatist rebellion is ongoing – has taken a toll on the country’s economy, with businesses curtailing production as a result. A rise in borrowing costs could aggravate the situation even further.
According to a Reuters report, the Singapore central bank is considering raising its policy rate further in order to address mounting concerns over inflation. While there are many reasons behind this move, one of the main reasons is likely rising unemployment rates. As this article points out, while job growth has been slow overall, it has been stronger in some sectors, such as health and social assistance. This suggests that not everyone who is looking for work can find a position that fits their skillset and/or experience level. In other words, there may be too many workers competing for too few jobs – which leads to wage inflation and potential price hikes across the board.