Are savers finally going to get a break?
Credit Suisse’s Sean Keane and others consider a possible rethink by central banks
01 November, 2016
ECB Board member Yves Mersch delivered a very thoughtful speech in Germany last week which was titled "Low interest rate environment — an economic, legal and social analysis." The speech was strongest in its commentary around the impact that low rates of interest are having on parts of European society.
Mersch said that the ECB are "… aware that our measures are having side effects and we are keeping this in mind. We are keeping a very close eye on the effects that the low or negative interest rate environment has on banks, insurers and savers."
In saying this Mersch is echoing some of the concerns that the Bank of Japan has started to focus upon. In Britain also, Prime Minister Theresa May's recent speech to the Conservative Party conference appeared to criticise the Bank of England's policies.
"While super-low interest rates and quantitative easing provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects," the Prime Minister said. "A change has got to come."
Mersch also acknowledged the "current social dislocation" that is being caused by factors such as low growth and high unemployment. He observed that societal insecurity about things like the value of savings, the certainty of pension provisions and the economic outlook for the years ahead "are a breeding ground for populist parties and movements."
Mersch said that the longer they continued, "... it will be more difficult for us, as a central bank, to explain our monetary policy decisions, particularly if some groups feel discriminated against by our decisions, such as savers in Germany. We must take these feelings seriously."
A great many central bankers around the world will no doubt share Mersch's perspective on the current environment. As time passes and the negative impact of low and negative interest rates on sections of the community become more apparent, it seems likely that central banks will increasingly recognise these issues and become ever more reluctant to push rates lower.