As markets boost their bets on interest rate cuts this year, investors are heavily focused on exactly how low borrowing costs will ultimately fall as the inflationary menace retreats.
Central banks including the Federal Reserve and European Central Bank will be influenced by an elusive and controversial concept: the so-called neutral rate of interest — the borrowing rate that keeps economies growing steadily, with full employment and inflation around 2 per cent.
After falling to rock-bottom levels before the pandemic, the neutral rate has, by some measures, edged up more recently. This could suggest official rates will not head as low as their pre-pandemic levels, even as inflation eases.
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