INTEREST rates are on the rise around the world. The rising rates are a reflection of the nagging concern central bankers have about inflation.
In Britain, lending rates are now at about 15 percent, the highest of the industrialized countries. Canadian interest rates are also spiking with the best Canadian corporations now paying 14.75 percent, up from 13.5 percent in the beginning of the year.
In Japan, where interest rates are normally quite stable, rates have climbed almost 1-1/2 percentage points since the first of the year. Even in Switzerland, where interest rates were 2 to 3 percent for years, the prime lending rate is 11.5 percent, up from 8.5 percent Jan. 1.
This global rise in rates has spilled over to the United States as well. Over the past four months, the interest rate the US government has had to pay for its long-term funding has risen by more than one full percentage point.
The rate hike comes at just the wrong moment for the Bush administration because the US Treasury plans to borrow $30 billion this week in the credit markets. Some bond traders expect the government will have to pay more than 9 percent interest on its bonds - the highest level in a year. The Congressional Budget Office estimates this could raise the budget deficit for fiscal year 1991 by $11 billion if rates stay at these levels.
If interest rates remain high - or keep climbing - some economists believe the world economy will begin to slow. In a worst-case scenario, a few economists believe it is possible to see a global liquidity squeeze where corporations battle each other for increasingly tighter credit. In its most recent report, the Bank Credit Analyst, based in Montreal, predicts: ``The global liquidity crisis will intensify. The final stages will be indicated by broadly based weakness in world stock markets.''
However, Kevin Logan, chief economist in the US for Swiss Bank Corporation, says there is no reason to become alarmed over the rate rise. ``It won't push us into recession - just a more modest pace of growth,'' Mr. Logan says.
Allen Sinai, chief economist at The Boston Company, says the higher rates should ``tone down growth, but not abruptly halt it.'' He notes that in some countries, such as Germany, rising interest rates do not affect as many households because Germans tend to save more.
In fact, Paul Kasriel, a former economist at the Federal Reserve Board, contends that rising interest rates are indicative of a stronger world economy. ``It's a signal that demand for goods and services is picking up worldwide,'' maintains Mr. Kasriel.
Certainly, this is the case in West Germany where the Bundesbank, the central bank, has been nervously watching the country gear up for monetary union with the German Democratic Republic. ``There are fears that inflation will accelerate and the capital needs will rise,'' explains Irgeen Rust, an economist with Westdeutsche Landesbank in D"usseldorf.
German industry is already running at close to full capacity. Although the inflation rate is only 2.7 percent, there are fears that inflation will increase later this year. For this reason, many economists expect the Bundesbank will raise interest rates this summer.
In Britain, the government has kept interest rates high to maintain the value of the pound and dampen inflation. Unfortunately, notes Steven Bell, chief economist at Morgan Grenfell & Co., a London investment bank, the high interest rates contribute to the inflation rate because the cost of mortgage money is included in a key inflation index. Mr. Bell predicts the British inflation rate, now at 8 percent, could rise as high as 10 percent.
The inflation rate in Japan has also been rising, moving closer to 4 percent, prompting the Bank of Japan to increase the official discount rate six times since June of last year.
The rate rise ``triggered a decline in the Tokyo stock market of more than 25 percent since the beginning of the year,'' says Tony Sagiuchi, head of fixed income at Nikko Securities Company International Inc.
The higher rates in the US have had a modest effect on the economy. On Friday, for example, the Commerce Department reported the gross national product, the sum of goods and services produced by the US, rose 2.1 percent in the first three months. This was up from a 1.1 percent increase in the fourth quarter.
With indications the underlying inflation rate in the US is now in the 4 to 5 percent range, some economists believe the Federal Reserve Board is likely to raise interest rates a notch this summer. ``This will have a slowing impact on the economy by the end of the year and through 1991,'' predicts Arnold Moskowitz, director of investment strategy at County Natwest USA, a bank.