Interest rates are not low due to central bank policy, but due to economic factors, Bank of England official Ben Broadbent said yesterday.
Broadbent is referring to the interest on government debt as opposed to the interest rate set by the Bank.
“I read a lot of economic commentary that says interest rates are low because central banks have chosen to keep policy rates low. I’m not sure this is true,” Broadbent said.
The rate of interest paid on government debt has been in a decline for around two to three decades.
Broadbent suggests a global “savings glut” has been largely responsible for this.
Savings rates have been high in places such as China and Germany. The excess savings have been used to purchase government bonds, which has increased demand for them and thus reduced the interest governments need to pay.
Broadbent also hit out at claims that the current stance of monetary policy increased inequality.
The global “savings glut” was raised as a serious issue by the-then Federal Reserve chairman Ben Bernanke in a 2005 speech.
However, the phenomenon was first identified seems to have been by consultancy firm Lombard Street Research.
More recently, David Beckworth, professor of economics at Western Kentucky university, has suggested interest rates paid by governments fell sharply during the financial crisis due to investors moving money into safe government bonds.