So it is clear that historically low interest rates have been dealt with in recent years. John Roman notes that rates for all maturities are rising. He points to the sharp rise in inflation as an explanation.
As a result, interest rates on government bonds – money that governments borrow for an agreed period – have risen dangerously long in the long run.
Until recently, these bonds were bought in large quantities by central banks to support the economy. The idea behind it? By removing loans from banks, they can easily lend money to citizens and businesses. This way they can buy or invest more, which is good for the economy. Now that inflation has skyrocketed, central banks are having to turn their backs on and reverse their inflation-enhancing policies.
As a result, governments have to start borrowing again from the financial markets, from banks, and charging higher interest rates. For example, the interest rate on Belgian government bonds for 20 years has almost doubled compared to the beginning of this year: to 1.38 percent.
These long-term interest rates also determine the level of mortgage interest, the interest that banks charge customers for home loans: if the long-term interest rate goes up, the mortgage rate goes up, too. Banks look to each other for this.
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