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Analysis - Ageing Could Weaken Central Banks, Spur Rate Volatility

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Not unlike the ageing public - central banks will have to work harder as their economies grey and greater interest rate volatility over time may well be the outcome.

Monetary policymakers around the globe are already preparing households and businesses for the likely end of the present super-low interest rate era over the years ahead.

Yet despite five years of crisis-management in which central banks were the dominant and most powerful forces, some economists reckon they have been steadily losing their influence on the real economy in recent decades.

The success of inflation targeting in managing long-term expectations has in itself lessened the reverberations of interest rate moves, as did developments in housing finance and extensive credit deregulation.

But one reason cited for central banks losing that traction is rapid ageing populations.

On the basic 'life-cycle' assumption that younger people incur more debt and older folk have higher savings and assets as they hit retirement, the argument centres on the idea that debtors rather than creditors are far more sensitive to interest rates.

As that plays out in aggregate - and the data suggests it has over recent decades - then the risk is central banks will have to pull much harder on the interest rate lever as populations age over time to make an impact on the real economy.

A central interest rate is utterly pointless however it's in text books and keeps getting cited therefore it's correct...

Although some of the arguments are false as older people are still leveraged up in retirement so they too will be sensitive to interest rates and these uber low rates have decimated their retirement funds meaning they may have to borrow...

Still it's not like the entire economy is fecked.

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