Global bank group warns over too much liquidity

WASHINGTON (AFP) – An influential group of leading world banks warned Thursday that central banks are pumping out too much easy money and markets risk becoming dangerously addicted to ultra-low interest rates.

The Institute of International Finance, which groups 450 banks, said that if central banks continue to flood money into the global economy, then any future bid to get it under control could itself destabilise the financial system.

“Much of the recovery so far has… been heavily reliant on ‘easy money’ conditions fostered by central banks,” the IIF said in a statement.

“These conditions – quantitative easing, very low interest rates – cannot last forever, but the risk is that financial markets have become addicted to them,” it warned.

“The longer central bank liquidity is relied on to hold things together, the more excesses and distortions are being accumulated in the financial system. An eventual unwinding of these excesses will become a destabilising risk event”.

The IIF said the US Dow Jones Industrial Average’s had hit an all-time high this week more because of relaxed international monetary conditions than thanks to any recovery in the real economy.