Although interest rate hikes by central banks are intended to control inflation, they typically come with a delay of up to 12 months in terms of their impact. Lessons learned from the outcome of a largely reactive approach in the 1970’s high inflation era will be at the forefront of decision makers’ mind. As will the importance of having flexibility in relation to monetary policy as we navigate a challenging economic climate in months to come. While we may start to see signs of reducing inflation in many economies in early 2023, reductions in interest rates are likely to be slower. A swift return to the near-zero rates most developed economies have become accustomed to over the last 15 years isn't expected.
The returns that may be available through different instruments used as part of the cash management strategy, whether it be cash funds, government and corporate bonds, or various deposit accounts, react differently and on different timescales to base rate changes. In an ever changing environment, it’s important to consider an approach that can take advantage of this.