New | World of zero interest rates seems to have run its course

The world of zero interest rates has outlived its usefulness, according to a chorus of influential bankers, watchdogs and economists anxious about asset bubbles and wealth inequality.

As financial markets start bracing for the first US and British interest rate rises in almost a decade, there’s a pervasive feeling that the extraordinary central bank policies of near zero percent borrowing rates, money printing and bond buying are now causing more problems than they’re worth.

Few, if any, now doubt super-easy credit and quantitative easing, for all their spillovers and distortions, were the right medicine to nurse economies out of a systemic banking shock, credit crunch and deflation scare.

But even those who applauded the rescue feel the cure has largely done its job and is now merely spreading other maladies.

"It’s a mistake to keep interest rates this low for so long as it breeds complacency and leads to social inequality," a top UK bank executive told Reuters. "QE was the right thing to do but I’m not comfortable with interest rates at zero."

That view is echoed across many central banking and supervisory circles too, where there’s some anxiety that inflation-targeting central banks have been overly mechanistic in prolonging very low interest rates due to a brief oil-led scare on headline deflation late last year.