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Are low interest rates, QE still useful?

Friday, June 12, 2015 - 02:23

U.S. and UK interest rates have sat near zero for close to a decade. As the Fed and BoE contemplate the timing of rate rises, Kirsty Basset asks whether easy monetary policy has outlived its usefulness.

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In a world of already low global interest rates, South Korea and New Zealand's rates just got lower. South Korea cut its interest rates to a record low of 1.5 per cent - as it tries to contain the economic fallout from a deadly outbreak of the Middle East Respiratory Syndrome. New Zealand cut rates for the first time in four year to 3.25 per cent, with falling dairy prices a key factor in the decision. In the U.S. and U.K, interest rates have hovered near zero for almost a decade. Super easy credit and quantitative easing policies were put in place to help nurse economies back to health following the financial crisis. But are low interest rates still proving useful? James Bevan from CCLA. (SOUNDBITE) (English) JAMES BEVAN, CHIEF FINANCIAL OFFICER, CCLA INVESTMENT MANAGEMENT, SAYING: "It is certainly the case that many central banks now appear to be pushing on a piece of string, and are not getting the sort of traction from monetary policy that they had previously anticipated or expected." Some are now asking whether ultra-low interest rate policies are actually doing more damage than good. Global bond markets, among other assets, have been hit by volatility. That's something ECB President Mario Draghi says markets should "get used" to in a low interest rate environment. And some fear asset prices are becoming detached from the real economy. (SOUNDBITE) (English) JAMES BEVAN, CHIEF FINANCIAL OFFICER, CCLA INVESTMENT MANAGEMENT, SAYING: "The biggest bubble must be the housing market in China followed quickly by the equity market in China. Both are on extraordinary valuations driven significantly by fund flows rather than strong fundamentals." And when rates do start to normalise, there could be more volatility ahead. IMF Chief Christine Lagarde. (SOUNDBITE) (English) CHRISTINE LAGARDE, MANAGING DIRECTOR OF THE IMF SAYING: "Regardless of the timing, higher U.S. policy rates could still result in significant market volatility with financial stability consequences that go well beyond U.S. borders." Analysts say the timing and manner of the normalisation will be key. (SOUNDBITE) (English) JAMES BEVAN, CHIEF FINANCIAL OFFICER, CCLA INVESTMENT MANAGEMENT, SAYING: "If monetary tightening in due course is slow and gradual and measured relative to the progress economies, markets need have nothing to fear. If however markets tighten aggressively, and inappropriately, markets will most certainly collapse." That's an outcome the world's top central bankers will be working hard to avoid.

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Are low interest rates, QE still useful?

Friday, June 12, 2015 - 02:23