BIS Warns About Central Bank Actions Inflating Asset Prices

Financial asset prices are at “elevated” levels and market volatility remains “exceptionally subdued” thanks to ultra-loose monetary policies being implemented by central banks around the world, the Bank for International Settlements said on Sunday.

In its quarterly review, the BIS said financial market volatility spiked higher in August on the back of geopolitical concerns and worries over economic growth, but quickly returned to “exceptional lows” across most asset classes.

“By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to contribute to an environment of elevated asset price valuations and exceptionally subdued volatility,” the BIS said.

 
The comments echoed the institution’s warning earlier this year that rock-bottom interest rates had led to “worrying” signs of unsustainable growth in property and credit markets in some countries.

The U.S. Federal Reserve is on course to bring its bond-buying program to an end in October and is expected to begin raising interest rates next year.

But if the Fed is stepping back, the European Central Bank is stepping up. The ECB has cut key rates, will offer hundreds of billions of euros of liquidity to banks, and purchase hundreds of billions euros of assets to try and ward off deflation and revive flagging growth.

Anticipation of the ECB’s largesse eclipsed concern over geopolitics and pushed credit spreads, bond yields and volatility back down again, the BIS said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza