Will interest rates finally rise?

Short-term interest rates are clearly on the rise in the developed world. However, the financial world mainly pays attention to what is happening with long-term interest rates on the bond market. This after the Italian government announced wild budget plans.

Dutch savers hardly notice it, but interest rates have broken through an important barrier in recent days. The weighted interest rate for the developed world, calculated by investment bank JPMorgan Chase, has risen above 2009% for the first time since 1.

A comparable index compiled by Natwest Markets has also reached that level. The interest rate rise is mainly due to the policy of the US Federal Reserve (Fed). Last week, he raised the main rate to more than 2%. It is only a matter of time before other central banks follow suit.

Huge interest rate differential
In Europe, the European Central Bank (ECB) plans to raise interest rates next summer. It annoying news for savers, it can take a while before they really notice anything. In the United States (US), banks are slow to pass on the rising Fed rate in savings rates.

The difference between the two interest rates has now risen to more than 1,5 percentage points. At some American banks you even receive less than 0,5% for a deposit with a term of 1 year. However, the currency markets are currently paying much more attention to developments in long-term interest rates on the government bond market.

shock wave
After the presentation of the Italian budget sent a shock wave across the bond market. The new budget created a lot of unrest. The parties are trying to fulfill as many election promises as possible by, among other things, introducing a basic income and lowering the retirement age. However, these measures cost quite a bit of money.

If the budget is implemented, the budget deficit will rise to 2019% of Italy's gross domestic product (GDP) in 2,4. That is 3 times as much as the European standard. Investors are concerned about the national debt of € 2.300 billion, which threatens to increase further. The interest rate differential between Italian and German government bonds (with a 10-year maturity) has now risen to 3 percentage points. That is twice as much as 2 months ago.

New debt crisis?
In markets, the euro has fallen by a sloppy 2% against the dollar. This is due to the growing fear that the seeds have been sown for a new European debt crisis. However, it will not come to that. Italian households have nearly €10.000 billion in savings accounts. This group is hit hard when the government confronts the European Union.

The coalition is not blind to developments in financial markets. Deputy Prime Minister Matteo Salvani said he follows the difference between German and Italian interest rates on a daily basis. On Wednesday, October 3, it was announced that the government will once again review the budget. It seems that the Italian crisis is ending with a fizzle, so that the euro can recover.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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