BIS: interest rates too low
INTEREST rates are too low in developed economies, risking a dangerous price instability and market distortions, the Bank of International Settlements (BIS) declared yesterday.
BIS, the college of central bank governors responsible for developing Basel III, has warned that abnormally low rates “risk creating serious financial distortions, misallocations of resources and delay in the necessary de-leveraging” in advanced countries.
Unusually, BIS singles out the Bank og England for its loose monetary policy in the face of inflation that is more than double its two per cent target.
BIS’s annual report, released yesterday, says of the Bank of England: “One wonders how long its current policy can be sustained.” The report shows that combined with interest rates of 0.5 per cent, Britain has a negative real interest rate of minus four per cent, lower than that of the US, the Eurozone and Japan.
BIS also criticises the argument made by the Bank of England that its lack of control over commodity prices, which are driving inflation, means that raising rates won’t help.
BIS said that “extraordinarily loose monetary policy” is boosting commodity prices because a “search for yield” has pushed financial investors into the commodities market.