Low rates contributed to credit bubble, says Tucker
EASY oney contributed to the huge credit bubble of the early and mid 2000s that eventually led to the financial crisis, a senior Bank of England official said last night.
Paul Tucker, the Bank’s deputy governor, also said that he and his colleagues must stand ready to bring interest rates back to normal levels.
“We must be alert to the need gradually to withdraw stimulus as and when recovery builds,” Tucker warned. Rates can only be held at their historic low for as long as “inflation expectations remain anchored to our target of two per cent,” he said.
The current ultra-loose policy could be building up problems, Tucker added. “We must be alive to the possibility that the alleviation of current macroeconomic problems could sow the seeds, somewhere in the financial firmament, of the next set of imbalances.”
Referring to the expansion of credit and asset prices prior to the credit crunch, Tucker cited as a possible cause: “increasing global liquidity, transmitted through expansive cross-border lending, kicked off by prolonged accommodative monetary policy”. Yet he maintained that for now, interest rates had to stay low.