By Tarun Singh
Over the past several years, global interest rate policy has moved away from a shared direction. The tightening cycle that began in 2021 and peaked in 2022 initially appeared broadly coordinated, but by 2023 central banks were clearly responding more to domestic realities than to global alignment. Inflation slowed at different speeds across economies, labour markets showed uneven strength, and financial stability risks emerged in specific regions rather than everywhere at once. By 2024, these differences had become structural. Some countries began cautiously easing policy as inflation pressures faded, while others kept rates higher for longer to reinforce credibility and contain demand. A few continued normalising policy after years of extremely low borrowing costs.
Capital allocation
Capital was no longer allocated purely on growth prospects or asset quality, but increasingly on relative funding costs, yield gaps between regions, and currency behaviour. As borrowing costs diverged, capital flows followed. Foreign demand for Asian bonds rose during 2024 as investors looked for stability amid uneven equity markets and compared real yields across regions. Interest rate gaps also revived activity in emerging market currencies, making carry trades more appealing. At the same time, currency risk became harder to ignore. Exchange rate moves could quickly erase the advantage of higher yields, forcing investors to focus more closely on central bank credibility, policy communication, reserve strength, and external balances.
Interest rates and currencies became closely linked factors in determining cross border returns. These dynamics were visible across asset classes. Real estate investment offered a clear example.
What data shows
Data from CBRE shows that cross regional investment flows between North America, Europe, and Asia Pacific reached about 2G.7 billion dollars in the first half of 2024. While this was lower than the second half of 2023, it marked a sharp improvement from the steep decline seen at the end of 2023. The figures suggest that investors remained selective but were willing to deploy capital where pricing adjusted and financing conditions improved. Bond markets reflected a similar pattern. Higher real yields in certain countries continued to attract long term institutional investors such as pension funds and insurance companies that prioritise income and capital preservation.
These investors balanced yield opportunities with duration risk and currency exposure, often using hedging strategies to manage volatility. Cross border bond issuance also increased in parts of the Middle East and North Africa during 2024, supported by strong demand for yield and improved access to global credit markets. Private credit followed a related path. As traditional bank lending tightened through 2023 and 2024, private lenders stepped in to fill funding gaps, particularly in emerging markets and capital intensive sectors. Deal volumes rose, with yields often reaching double digit levels to compensate for illiquidity and structural risk. This capital focused less on short term rate movements and more on predictable cash flows and negotiated protections. These trends unfolded alongside broader macroeconomic shifts. The International Monetary Fund reported that global current account balances widened again in 2024, reversing the gradual narrowing seen in the years after the financial crisis. The IMF also projected global growth slightly above 3 percent, reflecting moderate expansion under tighter financial conditions and uneven trade recovery. For investors, the implications have been practical. Differences in interest rates now influence where capital flows, how portfolios are structured, and how risks are managed. Duration, liquidity, and currency exposure have become as important as traditional risk measures. As long as interest rate policies remain uneven across countries, capital will continue to move toward markets where returns justify the risk, making a clear understanding of rates, currencies, and funding conditions essential to global investing.
The writer is an Economic & Investment Strategist.
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