Campos Neto, the President of the Central Bank of Brazil, made some statements during the 2024 Investment Forum, which was promoted by Bradesco Asset and Bradesco Global Private.
On that occasion, he mentioned that global interest rates should remain high for a longer period, which could have an impact on market liquidity. Among the points addressed by Campos Neto , inflationary pressures arising from the global labor market stand out, which do not signal a process of disinflation , due to more robust employment levels in many countries compared to the period before the pandemic. In this context, where many believe that low global interest rates (below 5.5%) have become the new norm, I propose an analysis of interest rates and their historical data.
Starting with the basics: Interest does not appear “out of nowhere”, but rather as the result of economic dynamics . When we lend money to a bank , for example, we are boosting its enterprise , generating new business opportunities that attract more customers, resulting in increased sales . Consequently, we expect there to be a gain. This gain, in turn, is distributed among four main stakeholders:
- Shareholders , who reap profits from the initiative they have undertaken;
- The government , which obtains gains by promoting the company's safety and environment;
- The workers , who dedicate their time and effort to the endeavor ;
- And finally, creditors , who carry out the mission of lending money , with the promise of receiving interest in return.
Therefore, contrary to the belief of some unsuspecting people, interest does not appear out of nowhere, but rather as a result of this economic process.
What does historical interest data in the United States tell us?
To analyze the rise in global interest rates cited by Campos Neto , I will use interest data from the American market . I will use the 30-year T-bonds for our study .
Image 1: Historical graph of interest rates in the US since 1971. Source: FRED
Looking at the data in the graph above, it is clear that interest rates remain below 7.5% per year from the year 2000 onwards.
Table 1: Statistics of the historical series of American interest rates presented in the graph.
Anyone who works with statistical data knows how important the average is for the historical series. We often say that all data points are closely observing the average. The numbers in our table show us that the average and median interest rates are around 7.5% per year, considering data since 1971. If we stop to observe the standard deviation , we realize that interest rates , at their minimum point , was close to the sum of two standard deviations.
Speaking in Portuguese:
We are not living in a period of higher interest rates for longer, but rather we are returning from a 'non-standard' situation to align ourselves again with the 'average reality' in terms of global interest rates.
What is the real reason behind an increase or decrease in interest rates?
I recommend that you read the previous article that addresses global interest rates . I would like to kindly ask you to follow me by subscribing to our newsletter , to have access to the next posts, where we will explore this topic and understand the reasons behind interest rate fluctuations .