300bp rate hike, costs would double loss-making entities, report says
Melbourne, Australia, December 8, 2021 / PRNewswire / – After declining for decades, inflation is back. Prices increase, often dramatically, for items such as petroleum, semiconductors and vehicles. Inflationary pressures are prompting some central banks to tighten, increasing funding costs. In a scenario analysis assuming a stress of 300 basis points (bps) of price and interest rate increases, S&P Global Ratings expects the loss-making entity ratio to roughly double.
That’s according to a report released today, titled “How a 300bp Rise in Inflation and Interest Rates Could Hit Borrowers.”
“Our stress scenario for a 300bp interest rate hike only assumes that rates would return to the levels that prevailed before the global financial crisis,” said Terry chan, Principal Investigator at S&P Global Ratings. “Yet we find that this increase would significantly change the financial position of private issuers.”
By region, from China companies are the most sensitive. Globally, cyclical transport, recreation and sports, which have not yet fully recovered from COVID-19, are the most vulnerable sectors.
“Persistent inflation, linked to supply chain disruptions and energy prices, could trigger wage inflation and push the Fed and other central banks to raise rates faster. This could trigger volatility. market, amplified by high debt levels, “said David Tesher, head of S&P Global Ratings North America credit research.
Sovereigns in advanced economies are generally able to absorb a 300bp interest rate hike, but some emerging markets may be stressed. For households, certain geographic and wealth cohorts may be vulnerable to rate hikes.
To quantify the potential effect of a high inflation and interest spread scenario, we stress tested a sample of over 24,000 non-financial companies (91% unrated) for an increase of 300 bp of producer price inflation and for a similar rise in average interest rate spreads. .
If interest rates soar, some cohorts of borrowing households may be more vulnerable than they were in 2008.
This report does not constitute a rating action.
S&P Global Ratings Australia Pty Ltd holds Australian Financial Services License Number 337565 under the Corporations Act 2001. S&P Global Ratings credit ratings and related research are not intended and should not be distributed to any person in Australia other than a wholesale customer (as defined in Chapter 7 of the Legal Persons Act).
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