The Impacts of Higher Interest Rates on Financial Stability

The Impacts of Higher Interest Rates on Financial Stability

International Monetary Fund

Inflation-adjusted interest rates are well above post global financial crisis lows, while medium-term growth remains weak. Persistently higher interest rates raise the cost of servicing debt, adding to fiscal pressures and posing risks to financial stability. For a long time, debt dynamics remained very benign, that’s because real interest rates were significantly below growth rates. This reduced the pressure for fiscal consolidation and allowed public deficits and public debt to drift upwards.

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