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Managing the Cost of Money

Wednesday 8th April 2021

Economies are already bouncing back from the worst of the COVID-19 crisis. Yesterday the IMF forecast that the UK economy would grow by 5.3% this year, helped by the fast vaccine rollout. The forecast for the US has also been upgraded, from 3.1 percent growth this year in a forecast last October forecast, to 5.1% now. These numbers are supported by improving jobs numbers and other economic indicators, yet central banks keep insisting that the recovery will take years and until then, interest rates will stay low and they will keep buying up government bonds. Today I talk to Patronus Partners CEO Paul Kavanagh about the role of central bonds in controlling bond prices (and yields), and how this is driving all other asset classes, including the value of shares.  Paul says tis approach is a long from a free market but it is driving investment in risk assets that will help the government recover. How we manage the debt is a different issue, he says, so long as we don’t try and balance the books too quickly and incur the sort of devastation we saw during the Thatcher years.

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