HOLDING interest rates at rock bottom is building risks in the economy as investors, households and firms may forget that rates can rise, Bank of England director Andy Haldane warned yesterday.
As a result borrowers could become over-stretched without realising costs could shoot up in the future, harming borrowers and the banks that lend to them.
Unless regulators are careful, that could become a major problem and even another financial crisis, he said.
“The action has been deliberately with an eye to stimulating risk taking to boost asset prices,” Haldane told the International Financial Law Review.
“But sometimes with policy you can overachieve. We need to be conscious of overachieving, of stimulating too much risk, of overinflating asset prices, of setting in train just the sort of leveraged bubble that led to this crisis in the first place.”