How was it possible for interest rates to stay low globally for such a long period?

We had a long period of low interest rates with low inflation. Inflation was quite stable over this period, with the exception of housing inflation (which is not included in the CPI data).
Im referring to the period between 1995-2007

By | 2013-08-25T13:21:39+00:00 August 25th, 2013|Mortgages Home Loans Interest Rate|3 Comments

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  1. Harlequin August 25, 2013 at 2:11 PM - Reply

    Two reasons. First, the world economy has significantly slowed. Slow economic growth normally results in lower interest rates, because there is less demand for business credit. Demand pushes prices up (including the price of money), and lack of demand pushes prices down. Second, the central banks of the major economic powers (particularly the United States and, to a lesser extent, the European Union) have been artificially reducing interest rates by setting bank borrowing rates at close to zero. (In the United States, the Federal Reserve has set the federal funds rate at 0% to 0.25%.) This is the rate at which banks can borrow money from the central banks. Since the banks can borrow money essentially interest-free, they have no incentive to pay high rates for deposits and no need to charge high rates on loans. Interest rates will remain low until the central banks raise their borrowing rates to banks.

    Further Response: Referring to the period 1995-2007. Interest rates were not particularly low from 1995-2001. By historical standards, they were pretty much in the normal range. From 2001 to 2007, interest rates were low because the Fed kept the fed funds rate artificially low. The Fed lowered the rates initially to combat the recession of 2000-2001, and then kept them extraordinarily low to deal with the financial impact of 9/11. Alan Greenspan (chairman of the Fed at the time) admitted that this was a serious mistake and was, to a significant extent, responsible for the real estate bubble that collapsed in 2007.

  2. manish August 25, 2013 at 1:57 PM - Reply

    The main reason behind this is Recession. Because of this there was many lay offs and salary cut down. People were not investing because they had a fear of losing money.So to promote investing banks reduce the interest rates. And when the things will get normal interest rates will again go up.

  3. Nick August 25, 2013 at 1:40 PM - Reply

    global recession

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