I enjoyed reading Dr Sentance's perspective on low inflation and interest rates (The Actuary, March). While the fall in oil price can provide a boost to importing countries, I wonder if there is more to this than meets the eye.
It is clear from the reported surplus at current production levels that there is an imbalance in the demand and supply equation for oil. So while the price might not 'correct' all the way to the $100 a barrel level of the recent past, at some point it would seem that it will head upwards. So how temporary is the $50 to $60 price and what is its 'stable level'?
In addition, since oil is priced in US dollars, and with the dollar's significant appreciation compared to some currencies - the euro being an example of a globally dominant one - I wonder whether the net impact of the lower oil price, while still meaningful, diminishes the windfall to the extent of the local currency depreciation?
Tied to this is the question of whether the US will raise its interest rates, as some observers are calling for, and how that would carry into the currency markets.
During the financial crisis a number of currency zones prematurely raised their interest rates, only to have to back away from it. Interest rates in some jurisdictions are in the previously unheard of negative territory.
It appears that the interest rate decision has become more challenging, especially in the absence of widespread steady net wage gains in the labour market.
Shiraz Jetha 18 March