Interest rates: BIS warns that low rates are causing asset bubbles

27th June 2011

The Bank for International Settlements says a surge in lending due to low cost of borrowing in emerging economies has resulted in higher prices and resulted in a credit and property price boom that was fuelling inflation, especially in emerging economies.

BIS said central banks' policy of cutting interest rates in an attempt to boost growth after the 2008 financial crisis may prove to be counterproductive.

On the BBC News website BIS is reported as saying: "The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis."

Economists and analysts have already expressed concern over low interest rates fuelling borrowing and leading to asset bubbles such as increasing property or food prices.

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