Central banks' tools losing effectiveness

AN unwelcome by-product of large-scale central bank action over the past few years has been a disproportionate reliance by markets on monetary authorities to fix things when they go wrong since repeated bailouts has led to complacency, imbalances and bubbles forming in risk assets.

However, too much of a good thing can be bad and going by the maxim that all good things must come to an end, financial markets are now discovering that central banks cannot keep patching up cracks which are widening into crevasses.

This point was made by Bank of America-Merrill Lynch in its Feb 17 Liquid Insight, where it discussed what appears to be an increasing trend towards depressing interest rates into negative territory as a monetary stimulus tool.