And this is precisely the conclusion reached by IMF researchers. They concluded that there really is a price to pay if interest rates stay too low for too long. “So if people keep buying government and corporate bonds for too long,” Mujagic says. “I understand that the IMF decided to cut interest rates in 2008 and 2012, but then the mistake was to stay the same for 10 years.”
“I understand that they decided to cut interest rates in 2008 and 2012, but then keeping them that way for ten years was the mistake”
According to Mujagic, one of the consequences of the monetary policy conducted by the IMF is that certain bubbles are created in the financial markets. That is, there is a greater likelihood of a financial crisis in the future, which may become more serious than the previous ones.
Zombification
Mujagic also says there could be a “zombification” of the economy. “That means companies that actually have no right to exist and should fail, don’t fail,” he continues. And this is a serious long-term thing. After all, a company always claims capital and people».
According to Mujagic, such zombie companies have no added value for the economy. And so it’s distressing for those companies to survive, because if they fail, those people and capital could go to work in industries where they have added value.
Ensure
The announced tighter monetary policy could push the economy into a situation where zombie companies will effectively collapse, but Mujagic is holding back. He thinks interest rate policy is too loose rather than too restrictive. “But because it’s taken so long, according to the IMF, the proportion of zombie companies may grow to such an extent that it slows down economic growth.”
And the concerns are that it is mainly SMEs that are susceptible to zombification. “And SMEs are the backbone of any modern economy,” concludes Mujagic. “So if you’re dealing with zombification, you can say you’ve avoided a bad chapter, but the price for that can be very high.”