By Jul 4, 2014Central bankers are firing back at their own central bank. -
Janet Yellen and Mario Draghi rebuffed a warning from the Bank for International Settlements that monetary authorities risked raising interest rates “too slowly and too late” to counter emerging asset bubbles.
“Monetary policy faces significant limitations as a tool to promote financial stability,” Yellen, the Federal Reserve chair, said on July 2, three days after the BIS published its advice. So-called macroprudential regulation should have the “primary role,” she said.
Draghi, the European Central Bank president, delivered what he called the “bottom line” the next day. “The first line of defense against financial stability risk should be the macroprudential exercise,” he said. “I don’t think that people would agree with the raising of interest rates now.”
Piling on, Bank of England Deputy Governor Jon Cunliffe said tightening monetary policy to curb asset values risked hurting the economy and so “should be seen as one of the last lines of defense” for stability. The BOE is already seeking to cool its property sector with measures to limit riskier mortgages and prevent an unsustainable buildup of consumer debt.
In Sweden, the Riksbank cut interest rates yesterday by a bigger-than-expected 50 basis points to ward off deflation, noting it is for “other policy areas to manage” rising household debt and housing markets.