Having slashed rates below zero and unleashed various rounds of asset-purchases, the Riksbank (Denmark's central bank) recently warned the rest of the world that "we have reached the limits of monetary policy." Now, however, Denmark's Systemic Risk Council has raised the financial system warning level to DEFCON1, warning that low levels of interest rates have led to excessive risk-taking and risk illusion among borrowers and credit institutions... and low market liquidity combijed with sudden shifts in risk perceptions may still lead to significant falls in asset prices and fire sales.
With so many of the world's nations going NIRP...
At least one of the world's central banks is worried about it...
The Systemic Risk Council has held its thirteenth meeting.
Sudden changes in risk perception in the financial markets combined with low market liquidity may still lead to significant falls in asset prices and fire sales. Due caution should be exerted in relation to the low level of interest rates, which may lead to excessive risk-taking and risk illusion among borrowers and credit institutions.
There may be systemic risks associated with a sudden change in risk perception in the financial markets combined with low market liquidity
Recent months have seen a partial materialisation of the risk of a rapid and marked fall in asset prices in some of the global financial markets. The large fluctuations in the financial markets in early 2016 have not had systemic consequences in Denmark. Sudden changes in the perception of risk in the financial markets combined with low market liquidity may still lead to significant falls in asset prices and fire sales. The Council's observation of 30 September 2014 regarding low interest rates and build-up of systemic risks still applies.
Due caution should still be exercised in relation to the low level of interest rates
Seasonally adjusted prices in the housing market continued to rise in the 2nd half of 2015 – albeit at a more moderate pace than in the 1st half for single family houses. Expectations of future price developments remain high. While growth in housing loans in Copenhagen and Aarhus has subsided, market expectations of low interest rates several years ahead may still lead to excessive risk-taking and risk illusion among borrowers and credit institutions. That may be the case if the risks of higher interest rates and a reversal in house prices are not taken into account to a sufficient degree. Council's observation of 27 March 2015 regarding low interest rates and build-up of systemic risks still applies.
Still - as long as Janet says everything is fine (or terrible), then all thgat excessive risk taking is fine.
And for those demanding moar, we remind raeders of Denmark’s central bank governor, Lars Rohde comments that monetary policy has reached its limit. "We have reached a point where monetary policy no longer has a big overall impact,’’ he said on Monday. "[It's] overstreched [and] there’s a limit to what more one can do’."