More Central Bank Panic: Bank Of England Warns of Elevated Risks to Financial Stability, Four More Central Banks Cut Rates Last Week!

Global central banks and governments remain in a state of panic. That’s if we account for their actions and statements over economic and financial conditions.

Last year, issuance of mostly ‘sanitized’ warnings had been the fad.

This year has been marked by policy actions, particularly a wave of easing measures of mostly interest rate cuts from different central banks.

Yet warnings has not diminished. 

Add to the alarm sirens recently rang by the US Treasury’s Office of Financial Research, the Bank of England (BoE) has just jumped on the bandwagon of declaring heightened risks of financial instability.

From the Wall Street Journal’s Real Time Economic Blog: (bold mine)

The Bank of England said Thursday that risks to the stability of the U.K. financial system remain elevated, citing threats ranging from Greece’s debt troubles to diverging central-bank policies.

The BOE’s Financial Policy Committee, which safeguards the stability of the financial system, made no new policy recommendations at its quarterly meeting that ended March 24, the BOE said Thursday.

But the panel highlighted a slate of issues in the world economy and global financial system that it is monitoring closely.

Among officials’ top concerns is the risk that participants in financial markets are too sanguine about their ability to quickly sell assets if economic news sours, a fragility the BOE has been highlighting for some time.

This drying-up of market liquidity risks heightening volatility in financial markets and could undermine financial-sector stability, the panel said.

The committee instructed BOE staff and U.K. regulators to work together to get a better grasp of which markets may be especially vulnerable and to find out what strategies asset managers have in place to manage their liquidity needs. It asked officials to prepare an interim report on the risks surrounding market liquidity by June and a full report by September.

The panel also highlighted potential risks to the financial system from a slowdown in the Chinese economy and from the U.K.’s yawning current account deficit, which has widened to around 6% of annual gross domestic product.

And officials said they are monitoring lending standards closely, particularly in the leveraged loan market, where banks lend to companies before selling on the debt to investors.

The BoE seem to expect volatility ahead even as market participants haven’t taken various risks into considerations. 

Funny but, in the past government agents used to blind to such risks. It appears that risks have become so brazen that political agents can't ignore them anymore. Ironically, the same agents continue to apply the same measures which has spawned the current imbalances. 

Current policies as I have been saying represent: “Yes I recognize the problem of addiction but a withdrawal syndrome would even be more cataclysmic”.


So current warnings seem like escape clauses designed to exonerate them when risks transforms into reality.

Oh by the way, after my post on Russia and Serbia’s interest rate cuts, rate cuts by Sweden, Pakistan and Hungary adds to a total of 9 interest rate cut by global central banks this month and 27th for the year.

(table from CBrates.com)

If we add Sierre Leone which also cut rates last week, this makes for the 10th and 28th respectively.

Here is Central Bank News on Sierra Leone’s action: (bold mine)

Sierra Leone’s central bank cut its monetary policy rate (MPR) by 50 basis points to 9.50 percent to promote private sector credit growth in an effort to stimulate economic activity against a backdrop of a challenging environment created by the twin shocks of Ebola and the collapse of international commodity prices, particularly iron ore.

Measures against twin shocks and collapse. Nice.

Well again that’s only the interest rate segment. There are many more non interest rates easing actions that have not been included in the above tabulations.

Yet all these point to global central banks deploying crisis resolution measures on a massive scale even without a crisis yet.

So while stock markets have been euphoric, governments have been panicking. Two different agents moving in different directions. Obviously one will be wrong here.

Yet it’s a wonder what tools will be left for global central banks, since they have munificently used them, when the real thing appears.