Savers and investors should look towards a ‘new normal’ interest rate of around 2.5% by 2017, according to Bank of England governor Mark Carney.
Carney is fighting a rearguard action over giving a steer for his thinking over future rate rises after receiving an ear-bashing from MPs about recently passing on conflicting information that confuses consumers and the money markets.
However, he has come out again and tried to clarify where interest rates are likely to go in the short term.
He also banished the idea of going back to the pre-credit crisis 5% norm for interest rates as a place impossible to go for many years as a result of the damage sustained by the economy.
Looking at the long term
“Everyone is saying this is about how and when rates move from the historic low of 0.5%,” he said. “But I’m looking beyond that. Small changes are not the issue, it’s where rates are going to be two or three years down the line if I am looking for a mortgage or business loan.
“Any rate changes will not be disruptive, but slow and steady ratchets upwards.”
Carney also explained that a rate around 2.5% was not far off the old 5% rate in real terms, once adjusted to take into account disruption to the economy and inflation.
“My aim is to get back to full employment and to control inflation so the economy does not get out of control again,” he said.
Meanwhile, looking further afield, Russ Koesterich, BlackRock’s global chief investment strategist is urging investors to shop for bargains.
Shopping for bargains
For stocks, he explains US companies are at their most expensive since 2007, but while volatility is low, the markets seem to be ignoring the escalating violence in Iran and the effects this could have on stability and oil production in the Middle East.
He suggests looking to Japan, which are trading as some of the cheapest stocks in the developed world and that the European Central Bank is making all the right noises in supporting markets that underlines a likely improvement in European stocks.
Other cheap alternatives that carry more risk are in the emerging markets, says Koesterich.
On bonds, he advises most opportunities will not give a good return, but sifting long maturity municipal bonds and mortgage securities in the States may throw up some interesting options.
