Low interest rates are now the norm; policy-making must reflect new reality

A LOW-interest rate environment has become the new norm, and that will profoundly affect markets, economies and society. Policy-makers must respond.

Over the past couple of weeks, the US Federal Reserve, the European Central Bank and the Bank of Japan have given signs of a more accommodative stance. Although the Fed has tried to signal that it is not a full-blown dove, the fact that it cut interest rates when the policy target rate was only between 2.25 per cent and 2.5 per cent suggests that the central banks cannot raise interest rates by much even if they wanted to.

There is a sobering implication here: The major central banks are handicapped.