Managing Interest Rate Risk: Treasury Strategies in a Tightening Monetary Policy Environment

Managing interest rate risk has become increasingly critical for corporate treasuries and financial institutions in the context of tightening monetary policies. As central banks raise benchmark rates to curb inflationary pressures, treasurers face heightened exposure to volatility in funding costs, debt servicing, and investment returns. This study examines treasury strategies designed to mitigate interest rate risk, including asset–liability management, the use of derivatives such as swaps and futures, and dynamic hedging approaches. It also highlights the role of liquidity buffers, scenario analysis, and stress testing in strengthening resilience against policy shocks. By integrating both traditional financial instruments and modern risk analytics, treasuries can align their strategies with evolving market conditions while preserving financial stability. The paper contributes to the ongoing discourse on risk management by offering practical insights into how organizations can safeguard balance sheets and optimize decision-making under restrictive monetary environments.