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[LONDON] Central banks globally are finding monetary policy has less power to boost demand than could be wished, while also posing a risk to financial stability, the head of Australia's central bank said on Tuesday.
Speaking in London on central banking since the global financial crisis, Reserve Bank of Australia (RBA) Governor Glenn Stevens said super-easy policies had led to more risk-taking in financial markets, yet not so much in the real economy.
"Corporations sit on stockpiles of cash, in many cases apparently reluctant to accept lower returns on investment projects in spite of the lowest cost of debt funding ever seen,"he said. "Capital is returned to shareholders, who are frequently faced with alternative options earning even less than the money would have earned in the corporation."
Households also seemed reluctant to borrow more, given that levels of leverage were already high in many countries. "If there has been a persistent shift in attitudes to debt, spending and saving, then monetary policy's weaker ability to generate short-term growth might just be part of the 'new normal'," said Mr Stevens.
Indeed, Mr Stevens cautioned that by encouraging the build-up of leverage, easy monetary policies might only create new imbalances in the financial sector.
This is a favourite topic of Mr Stevens, who has repeatedly questioned whether rate cuts, on their own, could fully revive Australia's sluggish economy.
The central bank trimmed rates to a record low of 2 per cent in May but has sounded wary of easing any more.