Managing imbalances and rising indebtedness under a low interest rate environment
Very low interest rates have now prevailed for a number of years and appear to be likely to continue for the foreseeable future. Given the duration of the easing period, a key question is whether monetary policy can still be considered as being counter-cyclical or has there been a stuctural change in the monetary environment. It also gives rise to the potential unintended consequences of the prolonged low interest rate environment in terms of the mis-pricing of risks, overleveraging and rising household indebtedness, disintermediation of savings away from the banking system, excessive speculation, and the formation of asset price bubbles. Such developments could create financial and macroeconomic vulnerabilities that could harm the long term growth potential of the economy.
Papers on this topic could touch on potential policy issues arising from the prolonged period of low interest rates, and explore possible measures to address financial imbalances. Studies on the effectiveness of alternative monetary tools and instruments in managing risks of imbalances are also welcomed. [Bank Negara Malaysia’s Conference on “Monetary Policy in the New Normal”. Bank Negara Malaysia. Accessed May 8 2013]