Bank of Canada warns of low-rate risk

OTTAWA—The Bank of Canada says low-interest policies that it and other central banks have put in place are adding another layer of risk to the already stressed global financial system.

The Canadian central bank says that the near record level interest rates that have been in place since the 2008-09 recession are taking their toll on insurance companies and pension funds.

Low rates, it adds, are even increasing the appetite of investors to take risks in search of higher returns.

Bank governor Mark Carney has warned about the dangers of low interest rates — which most Canadians consider a good thing — sporadically in the past.

Still, this time the bank’s governing council has thought the concern grave enough to add it to the list of risks facing Canada and the world.

The council says central banks have kept interest rates low because the alternative is worse — increasing the cost of borrowing and undermining an already weak recovery.

Overall, the Bank of Canada’s new financial systems review finds that the risks in the world have not changed much since the last report in June. It says the world is undergoing a co-ordinated slowing in economic activity taking place in both the advanced and emerging economies.

But it says policy-makers must also be wary of the side-effects of the medicine they are administering, especially since those super-low rates are likely to stay in place for some time.

Despite the headwinds, Canada’s financial system remains robust, the Bank of Canada says. But the country is also in a sense prisoner to circumstances, including whether the U.S. is able to resolve its budget impasse and whether Europe avoid triggering a new crisis.

Original Article
Source: the star
Author: CP