In addition to our regular monthly surveys of projections for over 90 currencies we also undertake a special survey of real interest rate trends in Foreign Exchange Consensus Forecasts (in May and November) for the countries listed below. We present consensus estimates of both short- and long-term interest rates.
G7 & Western Europe: United States, Japan, Germany, France, United Kingdom, Italy, Canada, Euro zone, Netherlands, Norway, Spain, Sweden and Switzerland.
Asia Pacific: Australia, India, Indonesia, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan and Thailand.
Eastern Europe: Czech Republic, Hungary, Poland, Slovakia and Turkey.
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The table and text commentary below represent a small portion of this special survey taken from our November 2020 issue of Foreign Exchange Consensus Forecasts.
Story of Low Rates
When we last did this special analysis on Interest Rate Trends in May 2020, it was remarkable to see how sharply rate expectations for the year ahead had been flattened in response to the Covid-19 pandemic. At that time, the reversion to an ultra-accommodative policy stance by the US Fed and European Central Bank gave cover for their counter parts in the emerging world to slash rates of their own to levels unthinkable until relatively recently. Six months on, the global economic damage caused by the health crisis (i.e. to output loss and the increase in private and public sector debt loads needed to ride out the storm) is even more sobering. Latest 3 to 12 month forecasts for short term rates and bonds yields, which are inversely related to price, are lower than they were in our previous analysis. Furthermore, panellists do not expect a meaningful change to the low rate environment for most countries anytime soon. Certainly, the anticipation of more fiscal stimulus from the US and lack of ’safe’ alternative investment opportunities, as well as extension of unorthodox monetary policy measures, keep expected rates of returns low. Notable exceptions include Argentina, Venezuela, and Turkey, whereby economic mismanagement and currency crises have caused nominal rates to remain high. In real (inflation adjusted) terms, though, fixed income investment in these countries is seen as unattractive on the risk-return spectrum. A key unknown remains the viability and implementation of vaccines in development, which will impact the trajectory of the global recovery.
A portion of the analysis from Foreign Exchange Consensus Forecasts, November 9, 2020.