High Central Bank interest rates doesn't mean that monetary policy is tight

D

Daal

https://tradingeconomics.com/argentina/interest-rate

Argentina has a 38% central bank rate, it also has 42.8% inflation and that is expected to rise further.
Meanwhile Japan has -0.1% central bank rates, it also havent had significant inflation in 30 years.
The level of rates dont tell you the if the monetary policy is loose or tight. That's something that 99% of Fed critics miss. Its not about the level of interest rates but rather the level vs the natural rate of interest. Argentina has high rates, but they should have been way higher. Japan has low rates but they should have been way lower (if it were possible). Due the zero bound, the way to 'lower rates' is to do QE.
Stop reasoning from the level of interest rate folks, its totally wrong
 
Daal said:
https://tradingeconomics.com/argentina/interest-rate

Argentina has a 38% central bank rate, it also has 42.8% inflation and that is expected to rise further.
Meanwhile Japan has -0.1% central bank rates, it also havent had significant inflation in 30 years.
The level of rates dont tell you the if the monetary policy is loose or tight. That's something that 99% of Fed critics miss. Its not about the level of interest rates but rather the level vs the natural rate of interest. Argentina has high rates, but they should have been way higher. Japan has low rates but they should have been way lower (if it were possible). Due the zero bound, the way to 'lower rates' is to do QE.
Stop reasoning from the level of interest rate folks, its totally wrong
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The evidence in the United Kingdom indicates the rate of pension saving is the more effective mechanism for controlling inflation and economic growth rates. Just not controlling the pension saving rate may have been the main factor causing either inflation or deflation, since the introduction of pension saving economic control in the United Kingdom over the last decade the economic targets have been adhered to like flat lines until the Coronavirus outbreak. If a nation is concerned about inflation use pension economic control instead of interest rate economic control. See the poster below.

http://morganisteconomics.blogspot.com/2020/01/pension-saving-economic-control-is.html?q=poster
 
When discussing rates in countries that have deep sovereignty over their own currencies and have therefore not been forced to "borrow" in the conventional sense, we should not consider rates in countries that were forced to actually borrow using debt instruments denominated in another nations currency. This isn't a comparison between two different fish; it's a comparison between fish and foul.

We should also try to be on the same page any time negative rates are mentioned. These are the province of Governments and Central Banks. As Daal points out above, we won't see negative rates from commercial banks. I've seen lots of posts on ET where the poster clearly did not understand this.

I suppose it might be theoretically possible , I haven't thought this through obviously, for a commercial bank to offer a small positive interest on demand deposits and a small negative interest rate on loans if the Central Bank accommodated by offering an even more negative rate on wholesale money provided to banks. That would require a pretty hefty spread between the wholesale and retail rates. Not likely at all. And it certainly would require very cautious underwriting.
 
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piezoe said:
When discussing rates in countries that have deep sovereignty over their own currencies and have therefore not been forced to "borrow" , we should not consider rates in countries that were forced to borrow using debt instruments denominated in another nations currency. This isn't a comparison between two different fish; it's a comparison between fish and foul.
More...
Substitute Argentina for the United States in the 1970s and the point remains. High rates dont mean that money is tight, lots of times it actually is a sign that money was loose
 
Daal said:
Substitute Argentina for the United States in the 1970s and the point remains. High rates dont mean that money is tight, lots of times it actually is a sign that money was loose
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Would it perhaps be correct to say it can be a reaction to too loose money, which can be another cause of inflation..? It seems that verb tense becomes critical here. In the case of Argentina, who knows. Maybe the data doesn't tell the whole story. They have a flat tax rate. Bad idea! And how many pay their taxes, how many dodge them? They've run trade surpluses. that that doesn't tell you whether their productivity and taxing is in line with their peso printing. I suspect it isn't. Whatever.
 
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Daal said:
https://tradingeconomics.com/argentina/interest-rate

Argentina has a 38% central bank rate, it also has 42.8% inflation and that is expected to rise further.
Meanwhile Japan has -0.1% central bank rates, it also havent had significant inflation in 30 years.
The level of rates dont tell you the if the monetary policy is loose or tight. That's something that 99% of Fed critics miss. Its not about the level of interest rates but rather the level vs the natural rate of interest. Argentina has high rates, but they should have been way higher. Japan has low rates but they should have been way lower (if it were possible). Due the zero bound, the way to 'lower rates' is to do QE.
Stop reasoning from the level of interest rate folks, its totally wrong
More...
Interest rates are like the weather. People will complain all of the time. Traders should never complain. It is too high. It is too low. They should just deal with it, while looking for sufficient volatility to make a living.
 
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