Carney Says QE Can Encourage Excessive Risk-Taking in Markets
Bank of England Governor Mark Carney warned easy monetary policy could prompt excessive risk-taking in financial markets.
Two days after the European Central Bank announced a 1.1 trillion-euro ($1.23 trillion) quantitative-easing program, Carney said six years of sustained monetary stimulus was justified on an economic basis, yet could carry a downside if it overheated markets.
“In an environment of low interest rates, and low interest rates for a period of time, and also quantitative easing, there can be excessive risk taking,” Carney said during a Saturday panel at the World Economic Forum’s meeting in Davos, Switzerland. “What those monetary policies are looking to do is move from an environment of reticence to take risk to responsible risk-taking. We’re trying to avoid reckless risk-taking.”
Rock-bottom interest rates and asset-purchases have been deployed by central banks to drive their economies from recession and then ensure a recovery. The MSCI World Index has climbed almost 50 percent since the start of 2010 and bond yields have slid worldwide.
“QE creates in some markets some distortions,” said BlackRock Inc. Chief Executive Officer Laurence Fink, who moderated the panel. “It moves huge volumes of money into the equity markets.”
Liquidity Illusion
Carney said policy makers had taken steps to ensure financial stability and that investors should realize central banks won’t come to the rescue when markets do slide and be alert to an “illusion of liquidity.”
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