Some of the City of London’s biggest names have attacked the financial system’s addiction to loose monetary policy and accused central banks of dicing with “moral hazards” — akin to the bailout of banks in 2008 — in their obsession with staving off a decline in equity and bond markets.
“Markets have become conditioned — unhealthily in my view — to expect central banks to support risk sentiment, regardless of the potential moral hazards and creation of asset bubbles,” Anne Richards, chief executive of Fidelity International told the FT City Network.
Ms Richards described central banks’ quantitative easing policies as a “groundhog-day” attempt to restore confidence in the markets. “We are in a circular pattern which is hard to see us getting out of right now,” she said.
Win Bischoff, who chairs JPMorgan Securities, said the negative rate policies in the eurozone, Japan and elsewhere were taking the world into an “unknown abyss”. Countering suggestions that the inflation of equity and bond prices spurred by QE would be welcome to investors, Sir Win said: “That is not likely to be acceptable socially or to capital markets and providers of finance.”
The comments were among a lively clutch of responses in an online debate held by members of the FT City Network, a panel of more than 50 senior figures in the City of London. The debate was sparked by the ECB’s recent move further into negative interest rate territory.
Shortly after last month’s policy announcement by ECB president Mario Draghi, Jean Pierre Mustier, the UniCredit chief executive who also heads the European Banking Federation, sought to offset a volley of criticism from mostly German hawks and present a more balanced assessment of the impact of negative rates on the financial system.
“The net impact on banks of the monetary policy [is] positive,” Mr Mustier told the Financial Times in a recent interview. “[It is] negative on net interest income [but] positive for the lower [bad debt] provisions, so net net, positive.”
Among the most aggressive critics of negative rates was Oliver Bäte, the chief executive of Europe’s biggest insurer Allianz, who accused Mr Draghi of politicising monetary policy. He rebutted the ECB president’s assertion that eurozone governments should already have implemented fiscal reforms rather than relying on monetary policy to fix Europe’s problems, in comments that appeared to directly address the outgoing ECB chief. “The reason why we’re not doing fiscal [reforms] is because you’re making it easy for people to spend money they don’t have,” he said.
His colleague Andreas Utermann, chief executive of Allianz Global Investors and a member of the FT City Network, said: “Many are probably rightly asking the question as to whether QE has become counter-productive and might be signalling to investors and savers alike an uncertain environment which leads to even higher savings and [a] savings glut.”
Michael Tory, who heads advisory firm Ondra, said: “We are all being progressively anaesthetised like a massive, global pot of slow-boiling frogs.”
Some members of the network took an even bleaker view. Mike Rake, the former CBI president and BT chairman, said the combination of Brexit and the UK’s already rising fiscal deficit could well throw UK monetary policy dramatically into reverse, as the Bank of England sought to counter inflation on a par with runaway Latin American economies.
“Sterling plummets,” he predicted. “We go into recession and interest rates have to rise significantly to finance the deficits and support sterling. Don’t cry for me Argentina.”
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