BIS warns of heavy reliance on monetary stimulus – World

 11:39 a.m.
 |
 EFE .- General Manager of the Bank for International Settlements (BIS) , the Spanish Jaime Caruana , warned of heavy reliance on monetary stimulus in the economy advanced.

At the general meeting of the BIS, held in the Swiss city of Basel, Caruana said that “Seven years after the global financial crisis, the policy mix remains highly unbalanced”.

“We remain too dependent on monetary stimulus and progress on structural reforms is still insufficient. The dilemmas faced by policy remain complicated,” said Caruana.

The general director of Bank for International Settlements (BIS) , the Spanish Jaime Caruana, said today’s heavy reliance on monetary stimulus in advanced economies.

“The current very low or setting rates is inevitable, and represents a new balance”, the general manager of the BIS said.

These interest rates so low “may largely reflect the shortcomings of existing analytical and policy frameworks to address financial booms and contraction of nature,” he said Caruana.

The normalization of policy should be welcomed. Overall, the low oil prices will print a significant growth of the global economy, which could support a continuing normalization of monetary policy impulse, “he added.

Caruna stressed that this standardization should take into account “the timely consideration of the specific conditions of each country” and “could generate some volatility in the short term but would help contain risks in a longer horizon.”

He also considered that financial booms can undermine productivity growth, as has happened in some advanced economies.

“Over the past year, the global economy grew at a rate not very away from its long-term average. However, business investment remained weak despite the strength of mergers and acquisitions and share buybacks financed with debt, “said Caruana.

” Risk-taking is more evident in financial markets on the real economy and the growth of labor productivity has continued to fall worldwide, “the CEO of the BPI said.

” The financial booms tend to undermine productivity growth, moving workers and other factors of production to sectors whose productivity grows more slowly, “said Caruana.

The productivity growth in advanced economies experienced credit booms in the prelude to the financial crisis of 2004-2007, dropped about 0.4 percentage points a year on average, compared to what had happened in that boom not occurred, ie if the relationship between credit and GDP had maintained its average rate of the past ten years the rise, according to Caruana.

“More surprising still that this effect persists even when the boom collapses,” the general manager of the BIS.
Between 2008 and 2013, productivity growth in these countries fell on average 0.6 percentage points a year over what would have happened to the boom not occurred.

In fact, for the latter period, the estimated loss is almost as high as the productivity growth itself.

In addition, the extension in time of very low interest rates can impair the ability of intermediation of banks, to make the transformation of maturities and long-term loans less profitable, and by eroding the value proposition of retail banking.

“The good news is that large international banks now enjoy better health, having strengthened its regulatory capital ratios due to its benefits” and the less good that “they have not yet regained the full confidence of the markets, “said Caruna.