Monetary policy has suppressed interest rates for quite a number of years in efforts to stimulate the economy, and many homeowners have taken advantage of the low interest rates by refinancing their homes, some even multiple times. What about your corporate treasury department? Have you prepared for the day interest rates rise? Do you have a written strategy and policies in place to give the treasury team clear instructions on daily investment decisions regarding overnight surpluses and working capital? If not, now is the time to begin preparations.
Low interest rates and a significantly decreased emphasis on yield have allowed many treasuries to happily leave their funds spread out across several bank accounts, simply taking earnings credit. And, as long as those funds are spread out across various counterparties, it is difficult to take umbrage with this approach. However, it is important to make sure that the focus remains on limiting counterparty risk, even as you broaden your investment options. Today, you may only utilize earnings credit and money market funds, but as interest rates rise, you may broaden your options to include time deposits, commercial paper, bonds, and more. It may be tempting to start emphasizing yield instead of security and liquidity, so be sure to clearly document the parameters within which you want your treasury department to operate. A clear strategy and supporting policies around controls and limits on counterparties, product types, ratings, sectors, permitted currencies and more are essential.
If you don’t have procedures in place to clearly detail how you will track and measure against the limits and firm controls in place to ensure they are followed, then you may not be ready for the days ahead, which we all know are coming. Take the time now to get ready for the day when interest rates rise. Click here to learn more.