Low interest rates are part of the new economic normality, money will be cheap for a long time to come, said economist Srboljub Antic.
“All the elements that led to falling interest rates are still present. The first is inflation, which is no longer one of the main economic problems, and interest rates have been the main instrument of monetary policy in the fight against inflation. The second is the need to finance huge deficits in developed countries, which shifts the focus of monetary policy to a generous supply of cheap money,” Antic told Business Magazine.
He pointed out that the public debts of developed countries are growing, so it is hard to believe that the political elites will decide for a significant increase in interest rates.
“After each major crisis, business circumstances change. The negative experience of the 1929 crisis, when restrictive monetary policy deepened and prolonged the crisis, changed the behavior of economic authorities. It became common to apply a combination of expansive monetary and fiscal policy, with lower interest rates,” Antic said.
Asked what can be expected if the world economy recovers faster, he said that then the central banks of the reserve currency countries and the European Central Bank (ECB) will first slow down the growth of money supply, while more active use of interest rates can be expected in the longer term.
Commenting on the data of the World Bank and the International Monetary Fund (IMF) that the global debt exceeded the global gross domestic product, Antic pointed out that he should not worry because, according to the creators of economic policy in the USA and the EU, the level of public debt is not important.
“This includes refinancing and interest payments, with refinancing largely shifted to central banks. Interest payments are not a problem for developed countries at the moment, but the situation may be different in low-income countries per capita,” said Antic, earlier Permanent Representative of Serbia to the IMF and Minister of Mining and Energy in the Transitional Government in 2000.
He believes that in conditions of low nominal interest rates, which are often close to zero, the interest rates at which Serbia borrows cannot be considered favorable.
“The boastfulness of every government in Serbia when it borrows is worrying, as if it is positive in itself,” Antic pointed out, adding that, in the conditions of crisis, especially the crisis that has no cause in economic policy mistakes, it is justified to use fiscal expansion in a shorter period, ie increase public debt, but it is important that this fiscal expansion has its limits.
As he stated, the Covid crisis hit Serbia at a time when the country had high levels of state deposits due to the concession of Belgrade’s “Nikola Tesla” airport and relatively regulated finances as a result of previous fiscal consolidation.
“Because of that, the state had the opportunity to be generous in helping the economy last year. The announcement of new aid this year can be partially financed by the sale of one of the state banks. This means that public debt will not increase by aid, but by slightly less amount,” Antic said.
He estimated that it would be ideal for growth and development if Serbia had a balanced budget in the long run, because in that case there would be no need for new borrowings and a slight reduction of the tax burden on the economy could be approached, with appropriate reduction of state expenditures, Beta reports.
