The Delicate Game of Interest Rates & Inflation

Brazil lifts interest rates by 1% to 5.25%. It’s seen as its most aggressive move since 2016.

2 weeks ago, Russia, (another commodity reliant economy) hiked rates too.

It looks like both central banks are trying to curb inflationary pressures. Rising commodity prices are a notable contributor.

Invariably, rising inflation will send government bond yields higher.

Why are the central banks in other commodity sensitive economies such as Australia and Canada still holding interest rates around the 0.50% mark?

Are the Bank of Canada and the Reserve Bank of Australia foolishly towing the same line as other Western economies?

The British, German and French economies are vastly different.

This may turn out to be a perilous policy error.

Are the BOC and RBA not entirely politically independent?

Can it be that the Russian Central Bank is acting for the good of the economy and citizens or is it because Putin doesn’t need to worry about being re-elected and Scott Morrison does?

Or perhaps it’s because the Household Debt to GDP for Russian’s and Brazilians is 22% and 37% respectively,

while in Canada it’s 113% and Australia’s is a world topping 123% ????

August 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

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