The International Monetary Fund (IMF) has stated that the sharp increase in interest rates in response to the inflation crisis is not having the same results everywhere. The effects of monetary policy vary from country to country, with potential delayed and unexpected consequences of the increase in official interest rates. The IMF warns that there may still be cooling effects from monetary tightening, especially in countries where fixed-rate mortgages are recalculated frequently. This could have serious implications for heavily indebted households. The IMF believes that the divergence in outcomes can be attributed to changes in the real estate market.
The IMF’s analysis focuses on the impact of monetary policy on housing markets, particularly in countries with a high proportion of variable-rate mortgages, high household debt levels, and limited housing supply. The increase in loan costs due to higher interest rates can lead to reduced consumption, as seen in Europe following the European Central Bank’s rate hikes. Despite expectations of slowdown or recession, global growth has remained stable, with countries such as Australia, Chile, and Japan experiencing stronger effects of restrictive monetary policy compared to Israel, Colombia, and Hungary. Spain ranks in the middle of the countries analyzed, indicating moderate effects of tightening monetary policy.
The IMF also examines how changes in factors such as fixed-rate mortgages and credit limits have impacted the transmission of monetary policy over the years. The influence of monetary policy has weakened globally, partly due to changes brought about by the 2008 financial crisis. The IMF notes that while many countries now have a higher percentage of fixed-rate mortgages, the transmission of policy decisions has become less effective. This shift in the transmission of monetary policy may also be influenced by the unprecedented speed and magnitude of recent interest rate hikes.
The IMF suggests that central banks and governments should consider the changing dynamics of policy transmission. While stricter macroprudential regulations can enhance economic stability, they may also reduce the effectiveness of monetary policy. In countries where policy transmission is weak, taking early and decisive action in response to signs of overheating or inflationary pressures may be necessary. Continuing to raise or maintain high interest rates for an extended period could pose significant risks. The effects of monetary policy may manifest with a delay of approximately two years, and the effects of rate hikes are typically stronger than rate cuts.
The IMF highlights the importance of monitoring the impact of official interest rate changes on households, as prolonged periods of high interest rates can eventually affect even those who seem relatively insulated. The document concludes that the longer interest rates remain high, the greater the likelihood that households will feel the pinch. Banks and policymakers are urged to take into account the potential consequences of recent monetary policy decisions and act accordingly. As the effects of monetary policy may unfold gradually over time, proactive measures may be necessary to mitigate risks and support economic stability.
