Central banks cannot haul economies out of stagnation on their own, the OECD has warned.
Catherine Mann, chief economist at the Paris-based think-tank, said countries were now “overloaded on monetary policy” as she described the use of negative interest rates as “a reaction of central banks trying to meet the objective of raising inflation and fostering growth alone”.
Ms Mann said banks faced being “squeezed” by the unintended consequences of sub-zero rates in an environment where demand remained subdued.
The OECD has repeatedly warned that fiscal policy and structural reforms are needed to ensure recoveries are self-sustaining.
“In the economies where negative interest rates are most deployed, the credit channel is particularly important, and this is impaired.
Banks in Europe for example have not deleveraged and they as a result are not in a position to effectively lend credit,” said Ms Mann.
“They are also squeezed in the middle between negative interest rates on the one hand and very soft economic activity on the other. So negative interest rates are tough. It’s a tough policy to use.”
Mark Carney, the Governor of the Bank of England, has warned that negative interest rates could do more harm than good by eating into banks and building societies’ profits and pushing up consumer charges.
Earlier this month, the European Central Bank (ECB) stepped up efforts to reflate the eurozone.
Policymakers slashed its deposit rate deeper into negative territory and beefed-up its quantitative easing programme.
In a bid to spur credit growth,
the ECB sweetened its incentive for banks to lend by revamping its
targeted longer-term refinancing operations (TLTROs).
From this June, banks that lend more will be paid as much as 0.4pc to borrow from the ECB. Ms Mann said the ECB’s actions were welcome, but would not get Europe “back on track” on their own.
“The ECB has done a lot, but the effective way to enhance economic activity in the euro area is a three-legged stool: fiscal, monetary and structural. What [Mario] Draghi [the president of the ECB] has done is make the monetary leg of the stool even longer, so we’re not there yet with the recipe we need in order to get Europe back on track.”
Some experts argue that central banks will be forced to inject money directly into the economy through so-called “helicopter drops” in order to boost flagging nations.
Ms Mann said targeted structural reforms and a stronger fiscal response would be effective.
“Policy needs to be more coherant. Structural changes create the underpinnings for growth.”
From this June, banks that lend more will be paid as much as 0.4pc to borrow from the ECB. Ms Mann said the ECB’s actions were welcome, but would not get Europe “back on track” on their own.
“The ECB has done a lot, but the effective way to enhance economic activity in the euro area is a three-legged stool: fiscal, monetary and structural. What [Mario] Draghi [the president of the ECB] has done is make the monetary leg of the stool even longer, so we’re not there yet with the recipe we need in order to get Europe back on track.”
Some experts argue that central banks will be forced to inject money directly into the economy through so-called “helicopter drops” in order to boost flagging nations.
Ms Mann said targeted structural reforms and a stronger fiscal response would be effective.
“Policy needs to be more coherant. Structural changes create the underpinnings for growth.”
No comments:
Post a Comment