LONDON (Reuters) – Major central banks must ensure that their efforts to gradually raise interest rates prove to be effective enough to cool some "sparkling" financial markets, the Bank of International Settlements said in its latest report. (BPI).
The umbrella organization for the world's central banks gave the warning as investors follow enjoying what he called the "light and warmth" of improved global growth, moderate inflation and rising stock markets.
The high levels of record debt, however, highlight the vulnerabilities in the financial system and the magnitude of badet price recovery in this year seems to have increased caution in the Swiss-based BIS.
"The high levels of debt, both in national and foreign currency, are still there, and so are the foamy badessments (badet prices)," said the head of the BIS monetary and economic department, Claudio Borio.
"The longer the risk taking continues, the greater the exposures of the underlying balance can be, the short-term calm comes at the expense of possible long-term turbulence."
There was also some surprise that the yields of the reference bonds, which drive the global costs of indebtedness, have remained low even with the Federal Reserve reducing its balance sheet and the European Central Bank is also about to cut its stimulus.
The improvement in global growth prospects, the continued monetary impression of Japan and the message from both the Fed and the ECB that they will tread carefully in the future was the likely explanation for the low yields, although they raised a "question deeper".
"Can an adjustment be considered effective if financial conditions are relieved unambiguously, and if the answer is no, what should central banks do?" Borio said.
The rate of adjustment of the likes of the Fed is already expected to be the slowest in the record.
One concern is that low bond yields and low market volatility, particularly in the United States, recall the "puzzle" of the bond market mentioned by former Federal Reserve Chairman Alan Greenspan in 2005 before The financial crisis.
Yields remained low then despite a rise in US rate hikes. UU And they only gained traction at the end of the cycle.
"In a time when gradualism and predictability are becoming the norm, it is likely that these issues (on effective adjustment) will become more pressing."
It is especially the case with some stock indicators now in "sparkling" territory.
At recent levels exceeding 30, the cyclically adjusted price / earnings ratio (CAPE) of the US stock market. UU., For example, has exceeded its post-1982 average by almost 25 percent.
The dividend payment relationship of US companies has also returned to high levels observed in the 1970s and, therefore, may not go much further. "High valuations: market complacency?" The BIS raised the question, though he said stocks looked much less frothy when compared to extremely low bond yields.
To see the full report, click here
Marc Jones information; Edition by Susan Fenton