BofA's Mensah expects rates to remain elevated from pre-pandemic

Interest rates in many parts of the world will probably stay elevated as frictions ranging from geopolitical conflicts to changes in supply chains plague the global economy, said Bank of America Corp.’s Bernard Mensah said.

“I personally have been worried about just the underlying inflation pressures,” Mensah, who leads the bank’s international operations, said in an interview with Bloomberg TV.

“My instinct has been that all of those things add inefficiencies in the system,” he said. “And as we’re moving to a different, perhaps, type of globalization, we might find that the underlying trend inflation rate is a little bit higher than before.” 

Mensah said while there are some parts of the market that may expect US interest rates to revert to where they before the pandemic, the terminal rate could be be as much as 150 basis points higher. Instead of relying just on monetary policy, economies across the world need to focus on their long-term trend growth. 

He said China’s stimulus measures — including interest-rate cuts, freeing-up of cash for banks and liquidity support for stocks — were “quite powerful” and could be a “step change.” Sentiment toward equities in the world’s second-biggest economy has seen a dramatic turnaround since the country unveiled the measures at the start of last week. 

Germany’s economy, the world’s third-largest, has been facing headwinds, with the US drifting away from Europe and China no longer just buying its goods but competing in core industries. While the country muscled its way through the pandemic and avoided an industrial shutdown after Russia cut off gas supplies, it still never fully allayed concerns that economic trouble might lie ahead. 

“Germany’s economy is underlying incredibly strong,” Mensah said. Still, there are a “lot of decisions that need to be made” that could affect its long-term growth prospects.