Flood of cheap money ‘risks creating bubbles’

A flood of cheap money risks creating bubbles in financial markets if interest rates remain low for long , ECB governing council member Erkki Liikanen has said.

“We need to pay attention,” Liikanen, also governor of Finland’s central bank, said in an interview to be published in leading German business newspaper Handelsblatt today.

“If interest rates remain very low for a long time, there is a risk,” he said.

The ECB unleashed its bond buying programme last month which has pushed down market interest rates, encouraging investors to move into riskier assets that will spur growth. Liikanen said it was important for central banks to set regulatory and supervisory rules to avoid risks, and if necessary, tighten or expand their monetary policy instruments.

He also warned against structural problems in the banking market.

“We have to prevent larger banks, which are still benefitting from implied state guarantees, from taking on too much risk,” he said.

However, he said he saw no cause for a debate on whether the ECB should reduce bond purchases.

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