Complacency is threatening the stability of financial markets, the Bank of England governor has warned.
Mark Carney said that in the search for returns on their money, investors were pushing up the price of assets and taking excessive risks.
Speaking at a conference in Wales, he said that the situation increased the risk of a “sharp reversal” in asset prices.
He also said that a rise in UK interest rates was “getting closer”.
Asset prices ‘stretched’
“We are alert to the possibility that financial markets may be mispricing risks”, Mr Carney told an insurance industry conference.
He referred to a statement issued by global watchdog the Financial Stability Board (FSB) in Cairns, Australia on 18 September, when Scotland was voting in the independence referendum. Mr Carney is the FSB’s chairman as well as the governor of the Bank of England.
He quoted the FSB’s warning that “there are increased signs of complacency in financial markets, in part reflecting the search for yield amidst exceptionally accommodative monetary policies”.
These policies include very low central bank interest rates and measures such as quantitative easing, which are designed to reduce interest rates in financial markets.
Asset prices have become “stretched across a growing number of markets, increasing the risk of a sharp reversal,” he said.