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25 January, 2020 00:00 00 AM
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The Davos elites still don’t agree on what’s next for central banks

Bloomberg, New York
The Davos elites still don’t agree on what’s next for central banks
This file photo shows the entrance hall of the Congress Center at the World Economic Forum in Davos. BLOOMBERG PHOTO

The quarreling elites gathered at Davos agreed on at least one thing about the world’s central bankers, they’re going to have a hard time getting out of the cul-de-sac of their own making. Last year’s fresh round of interest-rate cuts won fans at the annual meeting of the World Economic Forum for stabilising global growth and spurring stock rallies. But they also drew criticism from European bankers agitated by negative borrowing costs and some investors wary of looming asset bubbles.

Whichever view bears out, the cost of money is likely to remain cheap well into another decade after years of firefighting. “The world of central banks is predicting accommodative policy for quite some time,” International Monetary Fund Managing Director Kristalina Georgieva told the news agency  on Thursday. The newest member of the club, European Central Bank President Christine Lagarde, and Bank of Japan Govenor Haruhiko Kuroda join the debate on Friday when they appear with German Finance Minister Olaf Scholz on one of the closing panels at the gathering in the Swiss Alps.

They do so with the MSCI World Index up 41 per cent since last January, in part because of their 2019 response as the world economy slumped to its weakest since the financial crisis.  European bankers were frustrated with the ECB’s deployment of negative rates, which they argue has cost them billions. UBS Group AG Chairman Axel Weber called sub-zero rates a “distortion” and ABN Amro Bank NV CEO Kees van Dijkhuizen said they were “not a good place to be.”Others were less criticial but still wary. Markets are “priced pretty much for perfection,” Moelis & Co. founder Ken Moelis said. Barclays Plc’s Jes Staley said “asset valuations are overall quite high” especially in the technology sector.

Summing up the majority view, Staley told the news agency that with rates so low “almost by definition you’re going to have asset bubbles.”“You want to ride that wave while its happening but keep your eyes wide open for when there is a correction,” he said, adding central banks would

struggle to tackle an inflation breakout.

The argument of central bankers will be that they did what was needed to meet their inflation targets and avert a recession. Asset prices bear monitoring and negative rates are a legitimate tool of policy that brings benefits for banks as well as costs, their case goes.But don’t expect a change in policy settings any time soon.

 Lagarde’s ECB on Thursday left rates on hold, while Kuroda’s BOJ on Tuesday pushed back against speculation it may start normalizing soon.The Federal Reserve, which isn’t represented in Davos, is set to next week leave the benchmark interest rate at 1.5 per cent-1.75 per cent after three reductions last year. Some investors argue its recent buying of short-term bonds to ease money market strains amounts to quantitative easing, something it denies.

The IMF’s Georgieva struck a note that Lagarde and Kuroda may echo Friday in calling for governments to do more. They will be joined on their panel at 11:30 a.m. in Davos by US Treasury Secretary Steven Mnuchin and German Finance Minister Olaf Scholz.

 

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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