December 6, 2017 / 2:02 AM / a year ago

PBOC expert cautions central banks against too low for too long interest rates

SHANGHAI (Reuters) - A senior Chinese researcher has urged central banks to adopt monetary policies that do not encourage markets to expect the indefinitely lower for longer interest rates that encourage excessive risk-taking by lenders, the Securities Times reported on Wednesday.

The paper reported Sun Guofeng, director general of the People’s Bank of China’s research institute, saying that if central banks kept interest rates low for very long periods then lenders, who have a natural tendency for risk-taking, would take on excessive leverage.

Sun, who made the comments at a financial conference in Beijing, said ultra-low interest rates were the root cause of asset bubbles and that was why China was establishing a double framework of monetary policy and macro-prudential assessment (MPA) to cope with cycles in the financial system, the paper reported.

Sun noted that the U.S. Federal Reserve’s move to shrink its balance sheet was aimed at raising long-term interest rates to prevent another financial crisis, the newspaper reported.

Reporting by Samuel Shen and John Ruwitch; Editing by Eric Meijer

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